Dublin Airport Authority will make the bail out of the loss-making Great Southern Hotels group conditional on Government support for a radical restructuring.
The board of the Dublin Airport Authority (DAA) have two board meetings left before the end of the year and are facing a key decision on whether to invest more money into the group.
Several directors are unhappy about making a further investment, but they have been advised the chain will run out of cash in the first quarter of 2006 unless fresh finance is provided. There is even a possibility the hotels could cease trading.
An idea - floated last week - that the hotels become part of Fáilte Ireland is regarded by most sources as just one suggestion of many. In the meantime the DAA has to decide whether to advance the chain fresh funds.
It is not clear how much will need to be provided, but the hotels have performed poorly this year. After-tax losses of at least €3.5 million are expected for 2005. This represents more than 10 per cent of the total profits of the DAA.
The most likely scenario at this point is that the DAA will provide short term working capital to the hotels, but only if the Government provides some assurances that the wider problems at the hotels will be tackled. Any working capital advanced is likely to be very short term in nature. Directors are strongly opposed to the idea of giving the hotels a blank cheque.
The other two options are to leave the hotels to their fate or to sell them with or without Government permission.
Both of these options are regarded as highly unrealistic in the current political climate, although it is possible a compromise could emerge to sell some of the hotels. The chain is valued at present at €100 million.
A board meeting took place yesterday at Dublin Airport and the issue of the hotels was discussed. However when contacted last night, a spokesman for the DAA said he could not comment on board related matters.
The DAA is currently facing a number of challenges. Among them is the issue of its credit rating.
The ratings agency Standard and Poors has put the company on a credit rating watch. If the company's top A negative rating is downgraded this will raise the cost of its borrowings. It currently has debts of about €400 million.
The company, like Aer Lingus, is also facing a looming pension deficit. Some of its directors are eager to see the company set up a fund for its own staff. At present they are part of a joint scheme with Aer Lingus and SR Technics.
If the DAA has to take part of its pension deficit onto its balance sheet it would cause a further deterioration in its position.
