Ryanair - how one airline is dictating its own media agenda

Alpha Papa

Statement by Declan Collier to Joint Oireachtas Committee on Transport - February 24, 2010

The Dublin Airport Authority (DAA) has a mandate to operate and develop the State’s three airports at Dublin, Cork and Shannon.

A fundamental element of that mandate is for the DAA to ultimately own the property assets at its Irish airports on behalf of the State. We do this to protect key elements of national infrastructure on behalf of the taxpayer and to ensure the proper long-term development of our three airports. On behalf of the State, we do not provide for any commercial company to own key property assets at our Irish airports. That has always been the case. The DAA leases or licences its key property assets to protect the long-term strategic interests of the taxpayer.

In accordance with that mandate, the DAA signed legally binding contracts with SRT to acquire the leasehold interests in Hangars 1-6 at Dublin Airport in February 2009. The hangars are in a strategic location for the long-term development of Dublin Airport and SRT had decided to withdraw from Ireland and was selling its property assets.

DAA, and its predecessor Aer Rianta, had always been the ultimate landlord for the SRT hangars, which were held in two separate leases. One lease covered hangars 1 to 5, a maintenance garage, some offices and other related areas. The second lease covered Hangar 6.

In the wake of SRT’s withdrawal, there were a large number of proposals for alternative aircraft maintenance operations at Dublin Airport. The Government established a taskforce and the IDA and Enterprise Ireland were asked to assess the proposals that were received with regard to the use of the former SRT facilities at Dublin Airport.

As the owner of the hangars, the DAA then negotiated directly with any party that came through this state-sponsored competition process and was interested in renting hangar space. Separately, a number of companies also approached the DAA directly in relation to taking hangar space.

By the end of August 2009, the sale of hangers 1 to 5 and related properties had been completed. The DAA was in negotiations during the spring and summer of last year with potential new tenants for the hangars. At all times, the DAA fully assisted the various State agencies and Government departments in their job creation efforts.

By July of last year, the DAA had negotiated commercial terms with Dublin Aerospace (for Hangar 5 and part of Hangar 1), maintenance firm M50 (for the former SRT garage) and Ryanair (for Hangar 2 and part of Hangar 1). Ryanair negotiated and signed a commercial licence for both hangars directly with the DAA.

The situation relating to Hangar Six was much more complicated. Hangar Six was held within a complex structure of companies, originally established for the benefit of Aer Lingus and related parties in the early 1990s.

Because of this structure, Aer Lingus had to give permission to allow SRT to sell Hangar Six to the DAA. An additional issue that had to be resolved was the fact that SRT had an obligation to continue to provide maintenance services to Aer Lingus at Dublin Airport. The DAA initially understood that SRT and Aer Lingus had come to an agreement in relation to this issue.

Such a scenario could have allowed the DAA to lease the hangar to a range of potential users other than Aer Lingus. If Aer Lingus indicated that it was happy to vacate Hangar Six and cease having its maintenance activities carried out there, then the DAA could have licensed the hangar to another party. This did not happen.

During the spring and summer Aer Lingus’ ultimate intentions relating to Hangar Six remained unclear. It also emerged in the summer that there existed a scenario whereby, under certain circumstances, Aer Lingus could have been able to regain full control of Hangar Six at no cost.

The talks between SRT, Aer Lingus, and the DAA in relation to the DAA completing the purchase of Hangar Six continued through the summer. Meanwhile, SRT was also seeking to get another firm to take over the Aer Lingus maintenance contract. There was also the prospect that SRT would agree a new maintenance supplier with Aer Lingus and that new provider could then have licensed Hangar Six from the DAA with the permission of Aer Lingus.

Throughout the period from February until September, the DAA was examining its legal options to force the completion of the contract and take possession of Hangar Six.

The DAA was on the verge of entering court proceedings against Aer Lingus on at least three occasions during this period to force the completion of the purchase of Hangar Six. However on each occasion the legal advice we received from senior counsel was that the outcome of any such court challenge was at best uncertain.

By the early autumn, Aer Lingus had still failed to agree a position with SRT in relation to its maintenance contract. Despite being offered the use of hangars three and four, Aer Lingus made it clear that it was not going to move out of Hangar Six. The DAA again considered its legal options but it was now clear that the best option was to negotiate a commercial licence with Aer Lingus for Hangar Six.

By concluding a 20-year commercial licence with Aer Lingus in December at a market rent, the DAA successfully created €24 million in value for the State

Through its actions, the DAA protected a strategic property asset and also created significant value for the State, as the company effectively doubled its purchase price in less than a year. Ryanair told the IDA it would buy Hangar Six for €13.66 million when the rental agreement concluded last year shows that the hangar is worth more than double the amount offered by Ryanair.

I would now like to set out the position in relation to Ryanair and Hangar Six. Ryanair approached the Department of Enterprise Trade and Employment in February 2009 in relation to buying Hangar Six. Ryanair refused to negotiate with the DAA directly in relation to Hangar Six throughout last year despite the fact that the airline signed two other hangar licences with the DAA during 2009.

The DAA was willing to engage with Ryanair in relation to using any of the former SRT hangars for aircraft maintenance. Notwithstanding the legal complexities relating to Hangar Six, it was possible that the hangar could subsequently have become available for use by Ryanair or other third parties. If Hangar Six had become available for rent to Ryanair, the DAA would have been more than happy to licence the facility to Ryanair at a commercial rent, subject to the normal terms and conditions that apply to key property assets at our airports.

At all times the DAA kept the Government departments informed about developments relating to the Hangar Six sale. The DAA also informed Ryanair directly that another party was in advanced negotiations in relation to the hangar during last summer. The DAA did not reveal the identity of the other party to Ryanair, as this was commercially confidential.

The DAA did not inform Ryanair about the complex structure surrounding Hangar Six, as to do so would have breached confidentiality relating to the operation of Aer Lingus, which is Ryanair’s largest competitor at Dublin Airport.

However, the DAA is now aware that Ryanair had been informed of the complex structures relating to Hangar Six – and the requirement for Aer Lingus’ consent to any change of ownership as early as February 2008 - a full 12 months before Ryanair contacted the Government with its Hangar Six proposal.

In September, when it became clear that Aer Lingus was not going to vacate Hangar Six, Ryanair was informed by the IDA that Aer Lingus had legal rights and the hangar would not become available. The DAA has offered Ryanair a number of alternatives to Hangar Six, including a possible new facility built to its specifications. But Ryanair has refused to engage with the company on this matter.

Under the terms of the 20-year licence that Aer Lingus now has, the DAA has no authority to remove Aer Lingus from the hangar to be replaced by any other commercial customer. The only circumstance, under which Aer Lingus could be moved, is if the DAA required the hangar for the future development of Dublin Airport.

In that case, and in that case only, the DAA would be obliged to give Aer Lingus 24 months’ notice and either provide an alternative existing facility that met Aer Lingus’ approval or build it a new hangar to the same specifications elsewhere. A similar clause applies to every other comparable tenant.

We understand that the Attorney General has examined the relevant clause in the Aer Lingus contract and has confirmed that the DAA cannot move Aer Lingus to allow Ryanair or any other commercial tenant take possession of the hangar. The DAA has also received its own legal opinion that Aer Lingus cannot be moved in favour of another commercial tenant.

The DAA strongly rejects recent allegations that it has somehow stood in the way of job creation or has negotiated a sweetheart deal with Aer Lingus. Nothing could be further from the truth.

In relation to the deal with Aer Lingus, as indicated earlier in this statement, the DAA explored every possible avenue to maximise the commercial options available to it for all the hangars acquired including Hangar Six.

It was only when it became clear that the long-standing legal interest in and the complexities relating to Hangar Six limited the DAA’s options in relation to Hangar Six that the DAA moved to conclude a 20-year licence for Hangar Six with Aer Lingus. This deal was done at a market rent and created significant value for the State in a hugely depressed property market.

The DAA does not have a specific mandate to create jobs. Its primary role is to operate and manage the State’s airports. But where it is commercially feasible the DAA is always willing to support employment creation. In relation to the former SRT hangars, the DAA has at all times acted to facilitate any new commercial business that wished to locate there.

Acting with State agencies and directly with any and all interested parties, the DAA has secured tenants for the hangars. These businesses will create and support 365 new jobs. Dublin Aerospace is creating up to 230 new jobs. Aer Lingus is employing 100 former SRT workers and maintenance firm M50 will employ up to 35 people.

The DAA is also pleased to inform members of the committee that it is currently in very advanced discussions with another aircraft services firm that will create a further 120 new jobs at Dublin Airport. These jobs are dependent on achieving clarity without further delay that Hangar 3, which has been offered to Ryanair as a possible alternative to Hangar Six, is still available.

A successful outcome in this regard would mean that the DAA has concluded agreements with aircraft maintenance companies that will create, or close to, 500 real jobs at the former SRT site.

At all times during this process the DAA has behaved commercially but responsibly, and in the best interests of its shareholder and the taxpayer.

We would also reiterate that the DAA has been and remains available to discuss any reasonable hangar requirements that Ryanair may have.

We have shown that Hangar Six is not available. Unfortunately, Ryanair’s irrational insistence that only Hangar Six will meet its needs seems to rule out any chance of locating these jobs at Dublin Airport.
Ends

February 24, 2010