Brennan finds the devil in the detail

Legal requirements mean that the Minister for Transport's plan to split AerRianta into three separate entities may not be as easy as he first thought, writes John McManus.

Buried deep in the Air Navigation and Transport (Amendment) Act 1998 are a few lines of legalese that threaten to be a bigger obstacle to the break up of Aer Rianta than the massed ranks of the trade union movement.

The act allowed the conversion of Aer Rianta from a statutory body into a public limited company (plc) and, in the process, committed the company to conform with the requirements of the companies act.

The ramifications of this for the break up of Aer Rianta only came to light over the past few months as lawyers for the Minster for Transport, Mr Brennan, and the chairman of the company, Mr Noel Hanlon, started to pore over the legislation.

Mr Hanlon has made no secret of his opposition to the proposed break up of the company, which he has run for the best part of a decade.

The problem thrown up by Aer Rianta's plc status is, at one level, very simple. If, as is envisioned, it hands back the three airports it owns to the Government, it will, in effect, have paid a dividend to its shareholder. Under company law, a dividend can only be paid if the company has revenue reserves (accumulated profits) to cover them.

The problem at Aer Rianta is that its revenue reserves are in the region of €200 million, while the value of the airport assets it wants to transfer out are worth in excess of €400 million.

How best to bridge or circumnavigate this gap is the issue currently taxing the Department of Transport's advisers, accountants PricewaterhouseCoopers and lawyers Matheson Ormsby Prentice.

The simplest option would be to liquidate Aer Rianta or reorganise it via a court-approved examinership. These options appear to have been ruled out for a number of reasons.

Sources familiar with the situation suggest that either eventuality could trigger repayment of the companies debts of more than €450 million.

In addition, going down the examinership process would give various other stakeholders - in particular the staff - a say in the process.

The route that is now being contemplated will involve a considerable amount of financial engineering, the objective of which will be to boost the accumulated profits to a level that will facilitate the distribution of the assets of Aer Rianta.

Quite how this will be done has not been finalised but one obvious option is the sale of the Aer Rianta International subsidiary and the Great Southern Hotel Group. However, this may not be necessary as there are other more technical options that are used to get around similar problems in privately owned plcs.

The problem is complicated further because the initial proposal was that Dublin Airport would assume the existing debts of Aer Rianta and, in order to facilitate this, it would retain ownership of both the hotel subsidiary and the international consultancy business.

Mr Brennan gave a hint of the extent of the problem when he answered questions in the Dáil last week.

"There are serious issues relating to capital maintenance. However, we have been working our way through them and are nearly done with them," he told Labour's transport spokeswoman, Ms Róisín Shortall.

Given that PricewaterhouseCoopers and Matheson Ormsby Prentice are sharing some €1.5 million in fees with UK transport consultants Steer Davies Gleave, it probably is safe for the Minister to to assume a solution will be found.

But it remains to be seen if this can all be done in order to allow him meet his summer deadline for having the three new airport authorities operational.

Sources in the Department and at Aer Rianta now think that it is unlikely that the "big bang" approach that was originally envisioned will transpire. One scenario being touted this week was that ownership of only one of the airports will be transferred to begin with and this is mostly likely to be Dublin.

In the meantime, Mr Brennan plans to press ahead with naming the remaining members of the new boards for Dublin and Cork airports.

The chairman designate of the authorities have already been named. Jefferson Smurfit Group chief executive Mr Gary McGann will head up Dublin, while local industrialist Mr Patrick Shanahan will chair the Shannon authority. The managing director of Apple Computer in Cork, Mr Joe Gantly, will head up the third authority.

Detailed financial plans for the three airports will also be prepared in the coming weeks in order to address one of the main concerns of the Aer Rianta workers, who until now have been the main obstacle to the break up plans.

Following intense negotiations and threatened industrial action, SIPTU and the other unions representing Aer Rianta's more than 2,500 workers now appear to be getting on board the Minister's train, but not - he told the Dáil last week - at the cost of being guaranteed jobs for life.

Mr Brennan has undertaken to include a provision in the legislation to establish the new authorities that will "ensure that the existing workers in the company will not be brought to lesser terms and condition of employment than they enjoy".

The Department is adamant that this boils down to a commitment that there will be no compulsory redundancies at the new airport authorities and that this is in effect standard practice for all state companies.

The emergence of job security as the net point in talks with the unions highlights the uncertainty over the strategy being pushed through by Mr Brennan. The ability of Shannon and Cork to compete with Dublin is far from a given but, according to Mr Brennan, it is a risk worth taking.

The Minister set out his stall last July when he promised: "Under the new arrangements the three airports will compete with each other, free from central control.

"This healthy competitive tension and unrestricted quest for new routes, airlines and passengers will grow the business to the benefit of the airports."

Time will show whether Mr Brennan is right. However, at the moment, the only things that are growing are the lawyers' bills.