The consultants' report on the future of Aer Rianta published yesterday by the Minister for Public Enterprise, Ms O'Rourke, contained few surprises. It is increasingly likely the Government will choose to float part of its interest in the airports' authority in 2002 to fund its capital development programme.
This is the key recommendation of a 65-page report by Warburg Dillon Read, although the consultants do not say how much should be floated. Stating that the Government should be given flexibility on the scale of the flotation, the report also says "new" shares should be placed on the stock market to generate additional funds.
The Minister, who is believed to favour the flotation of about 30 per cent of Aer Rianta, will bring her own proposals to Cabinet in about three weeks. Similar to Aer Rianta's own Future Strategic Direction report of last year, Warburg ruled out additional debt to service Aer Rianta's capital programme on the basis that borrowings of up to £383.3 million (€486.7 million) - the value of the investment programme suggested by Warburg - would leave the company vulnerable to a down-turn in market conditions or higher interest rates.
Such a capital investment programme falls far short of the £520 million identified last year by Aer Rianta's consultants Lehman Brothers. "While a considerable portion is essential to facilitate `catching up' at Irish airports," said yesterday's report, "a portion should be reviewed, as it may be conducive to third party finance, amenable to being postponed or deemed nonessential."
The report also suggests that the eight hotels in Aer Rianta's Great Southern Hotel group should be sold "relatively quickly". Its sale would represent a "partial solution" to Aer Rianta's funding requirements.
Ms O'Rourke said last night she would conduct a detailed analysis of each of the hotels before making a final decision. One suggestion is that the hotels will be sold individually or in small groups. The report said a proposal by businessman Dr Tony Ryan to develop an executive jet facility at the Aer Corp's headquarters in Baldonnel, west Co Dublin, would be commercially viable, subject to appropriate facilities and rental arrangements with the Minister for Defence.
The report found against controversial proposals by the McEvaddy brothers to develop an independently-owned terminal at Dublin Airport. "Any potential benefits which competitive forces might bring to the operation of Dublin Airport are, in our view, considerably outweighed by the risks associated with developing what has been an operationally sound airport into an experimental ground for intra-terminal competition," said the consultants.
Warburg also found against proposals by Ryanair to pay £12 million to develop a "low-cost" terminal at Dublin in return for landing fees of £1 per passenger. While the report said "proposals to provide alternative financing for airport-related infrastructure should be considered", it said Ryanair's plan raised "far broader issues". "This proposal has a direct impact on airport charges and, in our view, must therefore be considered in the overall context of Aer Rianta's obligations to provide a non-discriminatory price regime." Ryanair declined to comment on the report last night.
On landings fees, the report said Aer Rianta's charges were low when compared with its European peers. When considered with the loss of duty-free shopping for intra-EU travellers and the capital expenditure programme, Warburg said Aer Rianta's financial outlook was "severely strained".
Given inflation and the unwinding of discount schemes, however, the report said average landing fees should rise from £3.10 last year to £4.60 in 2003, easing such a strain.
Looking ahead, the issue of airport charges would be a matter for the regulator, Mr William Prasifka. When assessing landing charges, Warburg said the regulator should use a system guaranteeing it a minimum rate of return while avoiding excessive profits from airlines. It said Cork and Shannon should set their own charges.
Warburg said a flotation should take place "as soon as practicable" once a clear framework for regulation had been resolved and once information on impact of revenues lost with the withdrawal of duty-free was available.
Legislation governing the regulator should be in place by the middle of the year but the planned flotation of Aer Lingus later this year and the assessment of the duty-free issue will probably push the flotation into 2002.
