Committee Reports > List of Committees > Joint > 1980 > Committee on Commercial State-Sponsored Bodies > Report No. 14 - Aer Lingus, Teoranta and Aerlínte Éireann, Teoranta

MIONTUAIRISC NA FIANAISE

(Minutes of Evidence)

Dé Céadaoin, 9 Iúil, 1980

Wednesday, 9 July, 1980

AER LINGUS TEORANTA AND AERLÍNTE ÉIREANN TEORANTA

Mr. D. M. Kennedy, Chief Executive and Director; Mr. G. P. Dempsey, Chief Executive. Ancillary Activities; Mr. Neil Gleeson, Assistant Chief Executive-Finance and Mr. M. Ó Riain, Assistant Chief Executive-Commercial, of Aer Lingus Teoranta and Aer Línte Éireann Teoranta, called and again examined.

307. Chairman.—We want some further information about Aer Rianta’s handling services. Aer Rianta said that as a result of it not being possible to reach agreement on the level of control which they should exercise over the charges made by Aer Lingus for these services, they were not in a position to take any positive action regarding complaints by other carriers about what they consider to be excessive charges levelled by Aer Lingus. Mr. Gleeson said on a previous occasion that he was not aware of the suggestion that handling charges were unduly high but that he would be prepared to deal with such suggestions. Has Mr. Gleeson looked into that point and, if so, would he care to comment?

Mr. Kennedy.—Perhaps I might make a general comment first and then Mr. Gleeson might come in. The question of the degree of control to be exercised by Aer Rianta came up under that heading. We in Aer Lingus accept that Aer Rianta should have an input in relation to the level of charges which would be fixed in respect of handling at Irish airports but in practice we have not had any substantial disagreement with Aer Rianta in this area. We operate an open-books systems so far as they are concerned so that they are in a position to examine the structure of our costs. The Committee will be aware that we work closely with Aer Rianta both at home and abroad, particularly where Shannon is concerned, in endeavouring to have a total package of charges in respect of airlines using Irish airports. Inevitably, there is some give and take but we have not had any formal representations from Aer Rianta in regard to the level of charges. We accept that they should have an input in respect of the decisions on actual charges because in virtually all cases there is not any other carrier supplying these services.

308. Chairman.—Have Aer Rianta ever told Aer Lingus that there are complaints of the charges being too high?

Mr. Kennedy.—No, not formally. What happens in practice is that when we are discussing the charges to be levied at Irish airports for the handling of other carriers and if we are talking about increasing our charges for, for instance, reasons of inflation, we discuss the matter with Aer Rianta. We explain to them the basis for the proposed charges and in general both parties reach agreement as to what is reasonable.

309. Chairman.—In other words, you make the decisions and Aer Rianta accept them?

Mr. Kennedy.—They have an input so far as the decisions are concerned and we listen to that input. They put pressure on us in relation to the charges that we are proposing at any time and they sustain that pressure in the event of our proposing charges which go beyond the cost involved in the charges. Then, we adjust the charges appropriately.

310. Senator Cooney.—Has any other airline complained about the charges?

Mr. Kennedy.—We must distinguish between formal complaints and the kind of complaints that everybody will make at any time that there is a proposal to increase charges. If there is a proposal to Aer Lingus to increase the charges that we pay, at other airports, we make a fuss. However there is not anything formal on record from Aer Rianta to the affect that they consider our charges to be unreasonable. I should explain also that we are in a reciprocal position vis-à-vis other airlines who, in many cases, are handling our aircraft abroad. For example, Sabena would be handling our aircraft in Brussels and, obviously, the charges we would propose at Dublin would be proposed while looking over our shoulder at the implications of the charges levelled on us at Brussels.

311. Deputy Deasy.—How do our charges compare with the charges in Belfast?

Mr. Gleeson.—I do not have here details of the charges at Belfast, but in relation to the charges at a selection of airports in Britain and on the Continent, the tendency is for our charges at Dublin to be higher than the charges at the British provincial airports and to be lower than or about equal to charges on the Continent. So far as many of the continental airports are concerned, our charges are significantly lower.

312. Deputy Deasy.—I am asking the question having regard to a supplementary question in the Dáil recently when somebody pointed out that the Belfast-London air fare was cheaper than the Dublin-London air fare despite the Belfast-London distance being much greater than the other and suggested that perhaps the handling charges were a contributory factor in this situation. Comment?

Mr. Gleeson.—I could not comment on that without examining how the costs at Belfast are constructed. I understand, though, that there is usually a loss in respect of British Airways domestic operations. If that is the case it would not be indicative of what the appropriate level of charges ought to be.

Mr. Ó Riain.—We must understand the difference between handling charges and landing charges. The handling at both ends of the Belfast/London route is provided by British Airways through their staff. In Dublin we provide handling services for ourselves, as we also do in London. They are “in-house” charges in both cases.

Mr. Kennedy.—There is a difference between handling charges and landing charges. Handling charges are a matter for direct negotiation between carriers, not between Aer Lingus and Aer Rianta. The Prices Commission do not get involved. We negotiate in a commercial way with other carriers for whom we provide services and we must be conscious of the fact that we will be negotiating with them on the other side of the table at the other end of the line. At Shannon it is important to have a package of charges and costs which will make it attractive for carriers to come into Shannon Airport. I do not think Aer Rianta are concerned about the level of our charges, but they do have a real legitimate interest in charges which we would be proposing to ensure that Shannon remains competitive. In that sense, though we negotiate formally with carriers for whom we provide services, it is open to them to complain to Aer Rianta. Aer Rianta can look at all our costs. My understanding of the situation is that we have always satisfied them that any increases we have proposed have been reasonable.

313. Deputy B. Desmond.—Aer Rianta have sent a precise submission to us that they should have a degree of control but said that it had not been possible to reach agreement on the level of control they should have over Aer Lingus charges. I suppose you would look with a jaundiced eye on Aer Rianta having control of that kind.

Mr. Kennedy.—There is an element of disagreement between us. We would object to Aer Rianta having control in any definitive sense. Our response is that we are the people who provide these services, we generate the costs in order to provide these services and we could be placed in an impossible situation if we handed over control of the charges to a third party. We would not want them to have control over the charges but we accept that they have a legitimate interest and an input into the level of the charges, and that is why we discuss it with them on an open books basis.

314. Deputy Cooney.—On which basis do you calculate your charges?

Mr. Kennedy.—It is on a marginal costing basis.

Mr. Gleeson.—We operate a computerised costs system in relation to our own operations, excluding anybody else. We add in other operations and we charge for these costs over and above our own. It means effectively that there is a substantial element of free handling. Very few of our own staff are not fully engaged.

Chairman.—Perhaps we would move to Deputy Deasy’s question in regard to Aer Lingus involvement in Enterprise Travel Ltd. Would Deputy Deasy like to elaborate on his point?

315. Deputy Deasy.—There were some contradictions in the media and I should like to know what is the position in relation to Enterprise Travel Ltd.?

Mr. Ó Riain.—Enterprise Travel have been an association of travel agents in Belfast in which Aer Lingus have had a stake for a few years. We always thought that some day we would have a stronger position in the Belfast market but we have been bound by international agreements and protocol. We have always wanted to have a presence in Belfast and that is one of the reasons why we took a minority stake in Enterprise Travel which has had ups and downs with different qualities of contributions from different shareholders, some of them inactive. Generally it has not been a very successful operation. This year, despite the fact that we are a 20 per cent minority shareholder, a decision was made by the Enterprise board in Belfast to hire a series of charters from a UK company which would operate from Belfast to Miami. That UK company went bust, so Enterprise was left without an operator. Enterprise then joined two Dublin-based operators in concert with Trans-America—an American operator, combining services from Dublin to New York, Belfast to Miami and Belfast to New York. The majority of the Belfast allocation of seats was sold on the Belfast services. The other operators were not successful. In the light of all they saw coming from the trade, Trans-America decided they would run down the service and Enterprise were told that they would have to bus passengers directly from Belfast to Shannon, at a cost of £100,000, to connect with Trans-America’s regular services. This was seen by Enterprise as being completely unacceptable. They had started off with one UK company that failed. They joined with other operators and were then left in a situation where they did not have direct services from Belfast any more. They came to us for help as we had dealt with them in the past and we were a minority shareholder. We decided to do what we could for them. At this stage with Trans-America having Enterprise pulling out and the other two Dublin-based operators not able to pull their weight, Aer Lingus offered to help. The question of shareholding comes in here because there was some unrest among the shareholders in Enterprise and we thought that perhaps we would clean that up at the same time. But the real business decision was made by Enterprise which was 80 per cent owned by Belfast independent operators who found that they had no product to sell. There have been talks about law cases and we do not wish to say much about this sort of thing. Enterprise believe that no one really has a sustainable suit against them. Enterprise lost certain money through deposits forfeited from Trans-America and at the same time Trans-America welshed on the services they were going to provide. The other case relates to whether some Dublin-based operators will be taking action against Enterprise and I would prefer not to comment on that as I do not think we will hear a lot more about that. At the end of the day, it was not Aer Lingus but Toronto World Airways who carried most of the traffic from Belfast to Miami. Aer Lingus got a proportion of the Dublin traffic that had been sold by Enterprise but most of the traffic having failed to go by the UK operators and by Trans-America, went by Toronto World Airways.

316. Deputy Deasy.—There seems to be a contradiction between the statements made in the media, specifically in the press, by Trans-America and other tour operators and the statements made by Aer Lingus.

Mr. Kennedy.—There seems to be some suggestion that Aer Lingus played some part in the collapse of the company through their minority shareholding in Enterprise. That is not the case.

317. Deputy Deasy.—In reply to a supplementary question during Question Time in the Dáil the Minister of State at the Department of Transport, Deputy Flynn, said Aer Lingus would need a majority shareholding in Enterprise. Aer Lingus were hoping to achieve that position but that has not come about as yet, has it?

Mr. Kennedy.—No, but negotiations are going on with the board of Enterprise. That is consistent with what the Minister of State said. We are still negotiating. We are still having discussions and nothing has been decided one way or the other. Our role in this was to help out a company which came to us. In addition to helping them out, we helped to carry passengers who would otherwise have been stranded.

318. Deputy L. Lawlor.—The reason for having a minority shareholding in Enterprise was so that Aer Lingus would have a presence in the North, but on the basis of the damaged image of Enterprise in that area, is there a cash bid to buy out the shareholders of the other 80 per cent?

Mr. Kennedy.—There is not a formal cash bid but there are negotiations about buying out some or all of the other shareholders. I do not wish to say anything about the negotiations other than that.

Mr. Ó Riain.—Enterprise have had some successes and some failures. This year they saved their operations. At the end of the day they were able to move their passengers without having to bus them down to Shannon and that sort of thing. The company have a good reputation in Belfast and we are confident that they will have strong support from the trade in Belfast even if some reduce or eliminate their shareholding in the company. The company have a good local reputation which will improve.

319. Deputy L. Lawlor.—Is the company easily identifiable with Aer Lingus?

Mr. Kennedy.—No. There is no secret in the trade about the fact that we have a minority shareholding but they are not prominently identified with Aer Lingus.

320. Deputy L. Lawlor.—Did the minority shareholding go along with the actual proposals? Is there any difficulty at board level about the direction in which the company are going because the other shareholders may want to develop in a way that Aer Lingus may not want to go?

Mr. Kennedy.—Obviously, we were not happy when the company first went with a UK airline and that when that operation collapsed they went with Trans-America. We would have preferred them to come to Aer Lingus as a first choice.

321. Deputy Deasy.—Are you hopeful that the major tour operators in this area and in the south will not suffer losses as a result of Trans-America’s withdrawal?

Mr. Ó Riain.—It was the failure of the Irish-based and the Dublin-based operators to sell that caused the thing to fall to pieces. If Trans-America had insisted on operating it and other tour operators had failed to sell, they would have been in a much worse position.

Chairman.—Deputy Desmond was not here for a previous hearing and he wished to ask a few questions.

322. Deputy B. Desmond.—I apologise for missing the session but there are a number of outstanding points which I would like to clarify as this is our final meeting with the company representatives. I appreciate that witnesses may not be in a position to answer all the questions I may put but I would appreciate if we could up-date ourselves. The company have now been through six months of 1980. How has passenger travel gone in that six months as compared with the first half of 1979? I know that is a very difficult comparison to make but what is the outturn now at the end of six months of this year?

Mr. Kennedy.—I cannot give a very detailed answer as I do not have all the figures available. I shall refer firstly to the first three months of 1980 which fall into our financial year 1980-81. Traffic generally on all routes in the first three months of the year would have been running comfortably ahead of last year in the corresponding three months. The situation changed quite suddenly and sharply from April onwards in most of our overseas markets and especially in the US and the UK. The economic recession appeared to bite quite drastically and traffic started to go down. This was not peculiar to Aer Lingus or to Ireland but was a general phenomenon. Total scheduled passenger traffic within Europe for all European airlines in the months of April and May fell by 5 per cent and 6 per cent respectively on the previous year whereas in the period January to March they were ahead of the previous year. On the North Atlantic, for all routes between the United States and Europe, US originating traffic for the period January through March was ahead of last year; April-May was 7 per cent and 9 per cent down respectively.

In the case of Ireland the picture is similar for business to and from Europe. In the case of the North Atlantic, it is down somewhat more. The total market, that is all carriers from the US to Ireland for the months of April and May was down by almost 15 per cent, with an increase in the other direction out of Ireland, but that did not balance the decline. In general there has been a fairly significant downturn in traffic in Europe and North America affecting all routes which appears to have started simultaneously on both sides of the Atlantic around April. The June figures in our case are seriously distorted by the strike.

Mr. Ó Riain.—On a point of clarification, the 15 per cent figure mentioned was all carriers from the US to Ireland and not just Aer Lingus.

323. Deputy Deasy.—Do you put the decrease down to the recession in Britain and the US, or have we priced ourselves out of the market?

Mr. Kennedy.—The recession is a major element because what we see appears to be happening across the board in all countries. Perhaps when we have more detailed statistics available for the entire summer and when we study the different markets we might be able to draw more detailed conclusions. At this stage the recession seems to be the dominant factor. A point which would support that is that within the US much the same thing has been happening. A statement recently by the senior representative of the Air Transport Association in the US, which is the representative body for all US domestic airlines, was to the effect that there was a traffic downturn in the second quarter of the year, April-May period, internally in the US between 6 per cent and 8 per cent compared with the same period last year. During the first quarter it was marginally up on last year.

324 Deputy B. Desmond.—As regards what you have just said, how do the market forecasts for the second half of the year look for July, August and September taking into account the suggestion that the Irish season is starting somewhat later?

Mr. Kennedy.—I do not see the picture turning around drastically. I should qualify that by saying that our own forecasts of advance bookings are inevitably affected by the strike. I cannot be as confident as I normally would be of our forecasting but I do not see any evidence of a significant turnaround in the quarter starting July.

Mr. Gleeson.—In relation to what Mr. Kennedy said about internal US traffic, it is expected now by the industry in the US that their traffic in this calendar year will be showing a downturn for the first time in the history of civil aviation in the US.

325. Chairman.—Within the US?

Mr. Gleeson.—Yes.

326. Senator Cooney.—Has the downturn been on scheduled passengers?

Mr. Kennedy.—Scheduled and chartered combined.

327. Senator Cooney.—Have you any breakdown between the two?

Mr. Kennedy.—No, but chartered traffic has been diminishing very much in importance on the Atlantic. Most of the traffic that would have been carried on chartered services up to two or three years ago is now travelling on one or other of the cheap fares scheduled services. The distinction between chartered and scheduled is very blurred on the Atlantic.

328. Deputy Deasy.—I am puzzled by the statement made last week by Trans-America that they are going to increase their services to the US and Ireland. Do you have an explanation for that?

Mr. Kennedy.—No, I have not. What I understand Trans-America have announced is in relation to their winter operation next year where they are talking about going from one service to two services a week with an aircraft which serves Amsterdam as well as the Irish market. Accordingly in terms of its total impact on the Irish market and the percentage of Irish traffic carried it will not be very significant.

Mr. Ó Riain.—TWA a few years ago operated two turnaround services to Ireland during the winter period. Trans-America is talking about operating two services that will go on to Amsterdam.

Chairman.—I should like to restrict these questions as we will be dealing with this later on.

329. Deputy B. Desmond.—The Employment Guarantee Fund allocated substantial moneys for the Waterford airport. In their submission to us Aer Rianta said they were anxious to join with Aer Lingus to examine the need for the development of feeder services between small airports in Ireland and those at Cork, Shannon and Dublin. Has any work been done on this proposal? Are Aer Lingus prepared to join with Aer Rianta on the Waterford development? I know it was a recent decision.

Mr. Ó Riain.—There has been no approach. We have not been asked to take any decision in relation to——

330. Deputy B. Desmond.—The capital moneys for a new airport have apparently been assured have they not?

Mr. Kennedy.—We would be prepared to work with Aer Rianta in examining this issue.

331. Deputy B. Desmond.—We would have a national airport. You would be interested in the matter?

Mr. Kennedy.—Yes. I do not know what our position would be when we had examined it, what the economics might be or what other implications there might be. It is not something we have looked at.

332. Deputy B. Desmond.—As regards foreign borrowings by State companies, in the context of procedures adopted; what is the procedure you adopt when you approach Departments for sanction for borrowings for loan purposes and so on. It strikes me that you have been exceptionally careful and coherent in your approach. Is the procedure by way of written submission, formal sanction from the Minister for Transport and consequent on that a submission to the Department of Finance and then do the board proceed to operate, or what is the precise formalised procedure?

Mr. Gleeson.—We covered this in some facets of our relationship with the Department of Finance and the then Department of Transport and Power. One of the things we indicated was that we have an effective working relationship with the Departments which did not call for an undue amount of bureaucracy and formalisation. However, in relation to the guarantee for borrowing this is something about which we have to make formal application through the Department of Transport to the Department of Finance and then the question of whether we get approval or not comes back through the same channels. By the same token, we carry on a lot of informal discussions with both Departments in relation to what our intentions are in respect of borrowings. We do not, or would not, regard it as sensible to arrange borrowings if we did not think they would be of a character that would be likely to get approval. We sometimes speak to them about what we are doing and what we intend doing on the telephone. We do not jot everything down but where there is a question of formal sanction under some of the Acts in respect of guaranteed borrowings that is done.

333. Deputy B. Desmond.—Where there would be major involvement this would be by way of written memorandum and written sanction from the Department?

Mr. Gleeson.—Yes.

334. Deputy B. Desmond.—I should now like to refer to an entirely different matter, the jet building plant in County Dublin. In the submission we received on 31 January last from the Department it was stated that 600 persons were expected to be employed by 1986 and I should like to know how that projection stands now.

Mr. Kennedy.—It still stands; it is still on target.

335. Deputy B. Desmond.—And work is going ahead?

Mr. Kennedy.—Yes. Work is at a pretty advanced stage on the conversion of the plant and the installation of the various facilities, the electrical and mechanical engineering plant which are required for the work. Work has actually started in a small way on site, in one small section of the plant, and that is on target.

336. Deputy B. Desmond.—I should like to check out two final matters. What are the projected developments of aviation fuel costs? It has been suggested in some quarters that with the economic recession developing we might have a glut of fuel and that prices may fall. It has been suggested also that as a result of that airlines may be a little better off. Is that anticipation pie in the sky?

Mr. Kennedy.—It is very difficult to estimate what will happen in this field. My own judgment is that with the economic recession, and the slowdown in demand for aviation fuel, there is certainly likely to be stabilisation at present levels. One might hold out some hope for some reductions, with supply and demand getting out of balance, in the near future. Up to April the cost was increasing steadily not only as a result of producer countries increases but also oil company increases. Since April it has stabilised and we are hopeful that it will at worst stabilise and, perhaps, there may be grounds for hoping for some reduction in the course of the coming months. In the longer term, our judgment would be that the cost of aviation fuel, in common with all other oil products, will increase at least at the same rate as inflation and, possibly, even greater. In the short term there is, perhaps, some hope.

337. Deputy B. Desmond.—Is it likely that air fares will be stabilised for the remainder of this year bearing in mind that one of the competing carriers, B+I, increased fares by 8 per cent? Are we likely to see a levelling out for the remainder of the year or will we see further price applications for air fare increases in the remainder of the year?

Mr. Kennedy.—The honest answer has to be that we do not know at this stage. We do not have any plans in the pipeline for further increases. Obviously, there are a lot of inflationary pressures which are bearing on our costs but, in looking at the fare levels, one has to take into account the market situation. We do not have any plans at this point but I cannot be any more specific than that.

338. Deputy Deasy.—There is concern in the Cork area about the withdrawal of direct flights to Lourdes. That action is causing quite an amount of hardship and I should like to know if there is any hope of rectifying that in the coming weeks or months. I am aware that the company’s schedule was upset due to the strike but that schedule envisaged that people who flew directly to Lourdes would return to Dublin and go by bus to Cork, or vice versa.

Mr. Kennedy.—Essentially, the problem is one of the availability of navigational services at night time for Cork Airport, and the difficulties of arranging for cover during the times that aircraft would be available to operate charters. A large proportion of our charters are night time operations. We touched on that as a separate issue earlier for obvious cost reasons. The problem that has arisen in relation to Cork has been one of the airport and the navigational services there not being available during the night time. That is something we would hope, as far as 1981 is concerned, to have discussions on with the various parties, the tour operators, Aer Rianta and the Department of Transport. I do not think any decisions have been made at this stage in relation to this.

339. Deputy Deasy.—Have you any hope of being able to correct or improve the situation in the coming months?

Mr. Ó Riain.—Some of the Lourdes business will be accommodated at Cork Air port through extensions of the normal working hours. Lourdes business is not as much in danger as the routes to such places as Palma and Malaga, which are in difficulty. There has been an agreement for quite a while that some of the major Lourdes movements would be handled in Cork, with a small amount of extensions of opening hours we require. There has been talk of cancelling services into Cork Airport at 5.45 a.m. or 6 a.m. when the airport only opens at 7 a.m. The 7 a.m. start relates to their working on a two-shift basis but we may want that aircraft in Dublin to fly to Frankfurt or London. It is a very complicated scheduling exercise. We understand the difficulty the Department have and we are disappointed that they have not resolved it but I cannot see any change beyond what was announced about one month ago as to what was going to happen for the remainder of the year. Hopefully, it will be better in 1981.

340. Deputy Deasy.—There will not be any relief, as you see it, this year?

Mr. Ó Riain.—No, nothing further.

341. Deputy Deasy.—There has been comment in the newspapers about an article which appeared in a magazine, Vision. Some of the comments in that magazine were flattering to Aer Lingus but more of them were not. Has the company a public relations section which answers such criticisms? I noticed that the criticism was not answered in the media.

Mr. Kennedy.—It was answered by Doctor Crowley of the Economics Department of UCD.

342. Deputy Deasy.—I saw that letter. Was he doing it on behalf of the company?

Mr. Kennedy.—He was doing it on his own behalf, as an economist. His argument was that some of the comparative statistics which were used were totally irrelevant and also—this is a point which came up separately in some of the examinations done by this Joint Committee—that no account whatsoever had been taken of the ancillary activities when drawing comparisons with other airlines.

Mr. Ó Riain.—There are a couple of points which have not been made about the Vision article. It is an example of how difficult it is to look at cross-airline comparisons we spoke of on an earlier occasion. The man who wrote that article said that Aer Lingus is producing a 6 per cent return on capital while our annual report last year recorded that we have had a 14.6 per cent return on capital.

Mr. Kennedy.—The question was in relation to public relations?

343. Deputy Deasy.—I asked the question purely because if it were a private company I am sure that they would be in like a flash with a contradictory statement or an explanatory statement. Semi-State companies are inclined to be reticent as to their position.

Mr. Kennedy.—That is not our practice. We are, if anything, perhaps over-active in responding to criticisms of this kind. Some of the comments which can be made in the media are so irresponsible and irrelevant that there is no point in trying to chase them. On the other hand any serious criticism that comes up will be taken up by us. On numerous occasions we have crossed swords with people in the public press and we are not a bit reticent about doing it but we cannot take on every comment no matter how outlandish.

344. Chairman.—Are you in a position to say what the cost of the recent strike will be to the company?

Mr. Kennedy.—I can give a broad indication but I cannot give a precise figure. Let me explain why I cannot say in detail. There are several costs involved. There are the actual losses which were incurred during the period of the strike itself and then there are the losses in bookings for the period ahead of us. Fewer bookings were made with us during the period that we were on strike for the period in which we are now operating, so there is a loss there. Finally there is an element of loss in terms of reputation, in terms of standing, in terms of our perceived ability to provide a satisfactory regular service. Also under that heading there is a possible threat to some of our major maintenance contracts. We have taken a lot of steps during the course of the strike to protect those contracts and to ensure that an adequate service was provided for our customers. We cannot be sure that that will be successful but we hope it will. In terms of costs we can identify at this stage, without taking into account the longer term costs, we are talking about a figure in excess of £6 million.

345. Deputy B. Desmond.—In relation to that £6 million would that be what one might broadly call—and I use the phrase which was used previously by your chairman in relation to the clerical strike—the total financial damage to the company, a net figure?

Mr. Kennedy.—Yes. It is a net figure.

346. Deputy B. Desmond.—I know this is a sensitive issue but can you add to that figure the damage to Irish tourism? There has been a figure of £2.5 million mentioned in relation to damage to Irish tourism. Is there any figure that you could put on that?

Mr. Kennedy.—I am not really in a position to provide that figure. Certainly there is a loss to Irish tourism but I cannot quantify it.

347. Deputy B. Desmond.—In effect then it is a matter of record that in the past two and a half years the cost of the clerical strike and the trademen’s strike has been about £11 million. Your chairman did say in the last annual report that the total financial damage brought about by the clerical strike in 1978 was £5 million and it halved your net profit figure for 1978-79. Is it fair to ask you what the likely figure would be for 198081?

Mr. Kennedy.—It is really too early to speculate. We were not looking at a good year before we started and we are now going to have to subtract a figure of at least £6 million from it.

348. Chairman.—Will the £6 million in effect be the amount by which your accounts will be affected at the end of the year?

Mr. Kennedy.—Yes. It will be at least £6 million. But I would want to qualify that £6 million quite heavily because first of all we are only just out of it. That does not take into account some of the potential long-term implications which it may have. If the figure were to be £X million that would be straight off the bottom line.

349. Senator Cooney.—It is an interesting thought that the loss to Aer Lingus, which is a loss eventually to the taxpayer, is about the same as the estimated yield from the contemplated resource tax on farmers. You mention that one of the areas of your operations endangered was the contract operations in servicing engines and overhauling. I presume that if there is any danger to those contracts the people who will suffer by reason of lost contracts and long term unemployment will be the strikers.

Mr. Kennedy.—If that were to be the case, they would be affected predominantly but not exclusively. But other employee’s jobs would also be at risk.

Deputy L. Lawlor.—The figures of £6 million and £5 million have been presumed in relation to industrial disputes. It seems that the management’s view was that demands were unreasonable and so on. It seems that the loss of £6 million is a very unreasonable conclusion to a dispute that possibly should have been or could have been fixed in financial terms for much less than the £6 million lost.

Chairman.—We will not go into that at this stage. We will be coming back to it. The Deputy can ask that question later on.

350. Senator Keating.—There were two areas that, looking back over our previous meetings, have not been referred to at all. I have two questions I want to ask. I am entirely in the hands of the Chair as to when I should ask them. On the question of EEC transport policy, it seems to me that there is an effort to move towards a situation in the EEC which is a little analogous to the position of the private airlines in the Unites States. It seems to me that this would pose a threat to a country based on a home market of 3.3 million rather poor people compared to, let us say, the German market of over 60 million people, twice as rich. I simply wanted to know whether anyone with Aer Lingus wanted to say anything about evolving Community transport policy and the pluses and the minuses for Ireland in regard to airline traffic on both internal and trans-Atlantic routes?

Mr. Kennedy.—That is a very big subject. I will make some comments if I may, not being prepared for the question.

Senator Keating.—Could I interject to say that I asked it because it is in fact the politicians who, wearing other hats at Community level, have the power to raise these things.

Mr. Kennedy.—Perhaps if I could make a few comments and then perhaps I could let the Committee have a more considered view on the Aer Lingus position in writing.*

The Commission published a memorandum on air transport within the Community last July which, on the whole, Aer Lingus thought was a good document. We would not necessarily accept all the suggestions and points of view in the document but, on the other hand, we regarded it as a balanced document, and one which was suggesting an evolutionary approach within Europe, rather than the kind of revolutionary approach which has been adopted in the United States and which has led to a certain amount of chaos in the air transport industry there. It also recognised the importance of the economic health of the airlines themselves, which was a very important consideration.

In so far as the Irish position is concerned, we were in touch with the Commissioner and with his staff and made a number of points in relation to Aer Lingus, the main one of which was directly related to the point you made about the size of the home market in Ireland compared with Germany, the United Kingdom or France. We pointed out that the proposal for increased liberalisation for what are called third and fourth freedom carriers only was one which held out a threat of more competition for us, without giving us the opportunity of getting into some of the larger markets to which the other carriers had access. Our point of view is that if there is to be liberalisation—and we can well accept that this is a right way in an evolutionary manner for the industry to develop—then let it also be done in a way which will allow smaller countries like Ireland to get access to the larger markets, and gain access to what we might call the fifth freedom routes—in other words, that we would be permitted to carry traffic between the United Kingdom and the continent of Europe. That would be a reasonable way of protecting the interests of airlines in smaller countries like Ireland.

Perhaps I should leave it like that. We can give you a document which would cover the broader range of our thinking on this. It is a matter which has come up before the Joint Committee on the Secondary Legislation of the EEC. A sub-committee produced a report which is consistent with the views we have in Aer Lingus.

351. Senator Keating.—I apologise for bouncing that in without warning. I am very grateful for the reply. Possibly we could be a useful channel. We would like to have a further document. I certainly would. I have another question. I am sorry to ask awkward questions. The question relates to the number of your replacements. A number of people have noted with pleasure that the consortium “Airbus Industrie” has produced a competitive, and some people say a magnificent aircraft, perhaps a little unexpectedly. That gives you an extra dimension of choice as compared with the two major suppliers you have had to look at previously. This extra dimension of choice exists within the Community and, therefore, in circumstances where possibly export credits and things like that would be a little more favourable. I do not ask you to tell us what aircraft you will order but, perhaps, a comment could be made on this evolution of competitive and efficient European aircraft in the light of your perceived composition.

Mr. Kennedy.—We think it is a very good development and I share your views about the quality of the aircraft. The A300 is an aircraft in which Aer Lingus is extremely interested as a possible Dublin-London aircraft in the future. In the short to medium term, the aircraft we are currently operating on our short haul routes we believe are the most cost-effective aircraft for our purposes. At some stage during the 1980s we anticipate the need to acquire larger aircraft for routes such as Dublin-London. We have examined in considerable detail the Airbus product and also the Boeing 757 aircraft, and, in terms of comparative performance, the two are literally neck and neck. At this stage we have not taken a decision because we do not have to take a decision. We do not have a requirement to make an order for some time. At this stage I would not like to forecast which one we would regard as the better aircraft. The availability of two aircraft is a very much better position for us.

The Committee examined the witnesses in Private Session.

The witnesses withdrew.

*See Appendix 5.