The State's aviation regulator will need to vigorously enforce competition powers to ensure that airlines do not play Irish airports off against each other following the break-up of Aer Rianta, according to a Cabinet memorandum prepared by the Minister for Transport.
The memo, seen by The Irish Times, was prepared by Mr Brennan before he sought Cabinet approval for the heads of legislation two weeks ago.
It says: "If Shannon and Cork airports are to operate without any Exchequer assistance, while the regional airports remain in receipt of significant Exchequer assistance, regulatory arrangements will have to try to ensure a reasonably level playing field.
"The recent decision by Ryanair to switch its Frankfurt (Hahn) service from Shannon to Kerry airport to get a better deal on landing charges is a good example of the kind of move which merits regulatory scrutiny, particularly in the new scenario being proposed by the Minister."
It goes on: "The scale of Exchequer assistance to some of the regional airports (in particular Kerry, Galway and Knock) will have to be carefully assessed if market distortions are to be avoided.
"The Minister envisages that the Commission for Aviation Regulation will be required to maintain a regulatory oversight on the market behaviour of the eight airports concerned and to enable the commission to intervene, if it deems it necessary, to correct such behaviour either in relation to airport charges or other matters."
Under the break-up plan, Cork and Shannon airports will no longer be subject to the price-capping rules laid down by the aviation regulator, Dr Bill Prasifka, though Dublin will remain bound by them.
"Given the scale of Dublin Airport now and into the future, relative to all other Irish airports, the Minister believes that it will continue to be necessary to have a price-capping mechanism applied.
"Under section 31 of the 2001 Commission for Aviation Regulation Act, price-capping applies to airports with annual passenger throughput 'in excess of one million passengers in the previous calendar year' and therefore the Act extends to all three State airports. The five regional airports are excluded because of their passenger throughput.
"Section 31 (2) could be invoked to allow the Minister to increase the passenger throughput threshold to, say, five million passengers by order, following consultation with the Commission for Aviation Regulation. This would enable the Minister to exclude Shannon and Cork from the current airport price-capping regime," it said.
Concerns held by the Minister for Finance, Mr McCreevy, about the break-up of Aer Rianta could be dealt with within weeks, the memorandum said.
It also said: "The Tánaiste supports the proposals in the memorandum and, in particular, the urgency which the Minister attaches to endeavouring to have the State Airports Bill 2003 enacted by the end of this year.
In the highly sensitive document, Mr Brennan said he wanted to bring legislation before the Oireachtas "speedily".
The two chairmen-designate of Cork and Shannon airports had both stressed "the imperative of early action on the creation of independent airports and that a year's transition should be avoided, if at all possible".
The document includes observations from the Department of Finance, which warned that it was premature to go ahead with the drafting of the final Bill until advisers report.
However, it said the vast majority of the legislation was "standard and non-controversial and cannot be considered premature. The Minister wishes to take all reasonable steps to minimise the period of uncertainty between the announcement of the Government decision in July last and the enactment of legislation so that key stakeholders such as Aer Rianta, its staff and customers can be in no doubt about the Government's intentions relating to restructuring."
It went on: "Any concerns that there may be about the capital structure or regulation can be resolved relatively quickly and can be addressed at drafting stage, with the assistance of the Department's advisers and the Attorney General before submitting a Bill to Government approval."
The future of pension entitlements for Aer Rianta staff will be one of the "most sensitive issues" to be dealt with.
"The unions have already sought the future under-writing of pension entitlements. Aer Rianta permanent employees over the age of 20 are members of the Irish Airlines (General Employees) Superannuation Scheme. Aer Rianta have stated in the past that it is their intention to set up their own defined benefit pension scheme for eligible Aer Rianta employees."