The Government has announced plans for the biggest transformation of Irish aviation since the foundation of the State, involving a second terminal at Dublin airport, the prospect of a third and the sale of a majority stake in Aer Lingus.
The Cabinet agreed the package of measures yesterday after months of difficult negotiations between Fianna Fáil and the Progressive Democrats.
The Minister for Transport, Martin Cullen, last night hailed the announcement as "the first-ever comprehensive plan for the long term success and growth of Irish aviation".
A majority stake in Aer Lingus is to be sold after financial consultants advise on the exact proportion to be offered to private investors. This, said Mr Cullen, "allows Aer Lingus to secure funding for new aircraft and in turn to compete and win new routes".
However, he refused to be drawn on how much of Aer Lingus would be sold, although he insisted that the Government would retain "at least 25 per cent". The method of sale was also not disclosed.
Mr Cullen is effectively faced with two options: a private placement with institutional investors or a stock market flotation.
The new Terminal Two is to be owned by the Dublin Airport Authority (DAA) and built by 2009. There will then be an open tendering process to decide who will operate it. The DAA will be allowed apply to run this terminal.
Significantly, the terms of an agreement reached last year committing Government and unions to maintaining pay and conditions and trade union rights at the airport will be among the criteria to be met by those seeking to run the second terminal. This eases the fears of airport staff that a new terminal would result in staff and pay cuts as the terminals sought to undercut each other.
Preparatory legal and regulatory work will begin to ensure that when the two terminals reach their capacity of some 30 million passengers per year, a third terminal can be built. Yesterday's Cabinet decision leaves open the question of who would own, build and operate the third terminal.
In the short-term, a new pier will be built at Dublin airport by 2007, giving the existing terminal new parking stands for planes.
The plan also includes a mechanism to ensure that Terminal Two is built to the minimum standard required and as efficiently as possible.
The decision follows a long period of negotiation between Fianna Fáil and the Progressive Democrats involving several failed attempts to bring an agreed package to Cabinet before yesterday.
The PDs fought to bring the maximum amount of competition between terminals to Dublin airport. However, Mr Cullen, backed by the Taoiseach, remained sceptical throughout of the wisdom of having competing airport terminals.
While the PDs did not get the independently built, owned and operated terminal they wanted, party Senator Tom Morrissey last night welcomed the package. He said the PDs' election commitment to giving Aer Lingus "the full commercial freedom to raise equity capital for expansion" had been achieved.
While the DAA can compete to run the second terminal - something initially resisted by the PDs - he hailed the fact that there would be "an open, transparent and competitive tender process, with an independent body supervising that process."
He acknowledged there had been differences between the parties but said: "The two parties in this Government have worked successfully to resolve different approaches."
However, Fine Gael claimed Fianna Fáil had "won the battle to keep the second terminal at Dublin airport in State hands". The party's transport spokeswoman, Olivia Mitchell, said the promise of a third terminal was merely a "fig-leaf" for the PDs.
Labour transport spokeswoman Roisin Shortall said the decision to sell a majority of Aer Lingus was "shameful" and would jeopardise Ireland's national interests. Green Party leader Trevor Sargent said the decision was a "classic Government fudge".
Sinn Fáin's Sean Crowe said the decision to sell a majority of Aer Lingus was "an act of national sabotage".
The Dublin Airport Authority welcomed the announcement and commented that it was looking at two potential sites for the new facility. It said building costs could run between €130 and €190 million. But ancilliary costs, on top of this, would come to about €100 million.
The issue of debt at the Dublin Airport Authority will now become a serious concern. The authority already has almost €400 million in debt on its balance sheet.