Contribution to the State Airports Shannon Group Bill 2014

June 25th, 2014 - Pat Breen

Deputy Pat Breen: I welcome the opportunity to contribute to the debate. It is a parochial issue for me. I was disappointed that Deputy Pringle criticised US military traffic through Shannon Airport. This business has passed through the airport since the Second World War and has generated significant revenue for the people of the region and I am supportive of this. The United States and the airport have developed a strong relationship over the years and it is important to acknowledge the contribution that has been made by that country.
Deputy Patrick O’Donovan, my good colleague from Limerick, suggested the airport should be rebranded as Limerick international airport. The Shannon brand is famous all over the world and changing the name would be a bad idea at this stage because this is a good brand. No matter where one goes, people have heard of Shannon Airport, and it is important

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to build on the brand, which has given so much to the region over the years.
I pay tribute to the Minister and his commitment to developing the aviation industry. The industry is worth €4.1 billion annually and it supports 26,000 direct jobs and 16,000 jobs in the supply chain. It is significantly important in generating economic activity, particularly given the fact we are an island nation. Having well connected air access is critical, particularly in boosting inward investment and tourism. For the first time in 20 years, the Minister has published a draft aviation policy and this will play a major role in ensuring we maximise the benefits of the industry and the role it can play in our economic recovery over the next number of years. He is presiding over the most radical overhaul of our airport infrastructure, which is in stark contrast to his predecessors. The indecision of the previous Government regarding the enactment of the State Airports Bill 2004 stymied the industry. This was particularly true in the case of Shannon Airport.
The establishment of Shannon Group will facilitate the development of core and non-core aviation business at the airport and adjacent to the airport, where there is a substantial land bank which can be utilised to generate more aviation-related activity. Setting the airport free from the control of the DAA has allowed for the rebirth of the innovative and enterprising spirit that marked the early years of its development and, in only 15 months, the transformation has been remarkable. An air of confidence has returned and the airport’s international credibility has been restored. The pro-tourism budgetary measures introduced by this Government, especially the abolition of the travel tax, have contributed significantly to the airport’s return to profitability. I commend both Ryanair and Aer Lingus on their positive response to the abolition of this tax. The airport’s traffic has increased significantly over the past number of years and it returned to profit in its first year of independence, which is remarkable.
Historically, Shannon Airport had a strong share of the transatlantic market, but when the open skies policy was introduced it lost a significant share of the market. I am delighted that the new airport authority is working hard to win back this business. Last year transatlantic traffic increased by 18% and new routes to Chicago and Philadelphia were introduced. This growth will accelerate this year, given the return of year-round Aer Lingus services to New York and Boston using new narrow-bodied Boeing 757 aircraft. This will increase capacity and tourist numbers in the country, particularly from the east coast of the United States. United Airlines, in particular, and Delta Airlines should also be commended as they provide a year-round service, with United Airlines increasing the number of flights into the airport by 90 this year.
I was delighted to represent the Government in the absence of the Minister at the launch of the Boston service earlier this year and I have not witnessed such confidence at the airport among staff and tourists for a number of years. One will notice this confidence every morning in the airport. Airport management is also making significant strides in expanding its short-haul network. The addition of eight Ryanair routes was a major boost, and five of these routes - to Berlin, Fuerteventura, Krakow, Paris and Warsaw - will be retained this winter, which will double the airport’s capacity during that season. Aer Lingus Regional has also bolstered its commitment to the airport, and a new route to Bristol will bring in 200,000 passengers before the end of the year.
I expect management to continue to build on the growth it achieved last year. There is a dynamic board under the chairman, Ms Rose Hynes, and we are fortunate to have secured the services of Mr. Neil Pakey as chief executive officer. He has huge experience, as he has transformed Liverpool and other airports. He is an asset to the Shannon Group. The most important people at the airport are the staff, because they are determined to make it succeed, and their efforts must be commended. What the management and staff have achieved in only one year as an independent airport is remarkable, especially when this is benchmarked against other European airports. According to Airports Council International, almost half of Europe’s airports were loss-making last year, at a time when the numbers using air travel had increased. Airports in countries that have been hit hardest by the recession, such as Ireland, Greece, Portugal, Spain and Cyprus, are enjoying the greatest recovery in the aviation sector. I suspect the reason for the increased demand is that low-cost operators are using these countries. Ryanair is a model in this regard.
It is important, therefore, that Shannon Airport continues to expand its short-haul network and to pursue a two-airline strategy, which is important. Competition between Ryanair and Aer Lingus is the key to ensuring the airport does not become over-reliant on one airline, and I am pleased that one of the key proposals in the aviation policy is that the State will continue to pursue such a strategy, which is important. A scenario cannot arise again similar to that which occurred in early 2010, when the airport was deserted because it was over-exposed to one airline. Thankfully, that has changed, and the mood is different.
The advantage of the formation of the Shannon Group is that it will allow the region to refocus on maximising its potential. In the early years of the airport’s development, the late Mr. Brendan O’Regan recognised the need to expand the infrastructure around the airport, and the pioneering initiatives undertaken at that time included the setting up of an industrial estate, a model that has been replicated in many other countries, such as China. I visited such a development in Shenzhen. Most Chinese delegations that travel to Ireland want to visit County Clare, not because of its beauty but to see how the Shannon free zone worked. They also take in the Cliffs of Moher, which is important for tourism. Shannon Development was set up to manage the world’s first industrial free zone. It was the only regional economic development agency and it would be remiss of me not to acknowledge the contribution made by the management and staff of Shannon Development down through the years. They pioneered and delivered a number of significant initiatives and their contribution to the development of our region should never be forgotten.
The Shannon Group will have access to the property assets and strategic lands, including the land banks, adjacent to the airport. This is important because it will allow the group to push ahead with the development of an international aviation centre of excellence. The Shannon region has a strong international reputation for aviation-related business, with up to 30 companies involved in aviation-related industries located there. Two of our largest maintenance, repair and overhaul, MRO, companies are based at Shannon Airport - Shannon Aerospace and Transaero - and the University of Limerick provides an aeronautical engineering degree course, which ensures a stream of highly qualified graduates is available. International students have also been attracted to the region, given its reputation for excellence.
[Deputy Pat Breen: ] We also have a strong international reputation in aviation leasing and Ireland is one of the leading players in the industry, on which we want to build at Shannon. With nine of the world’s largest aircraft leasing companies based in Ireland, it is estimated that 3,000 aircraft - 50% of the entire global fleet of leased aircraft - are managed here. Avolon which in four years has become one of the top global leasing companies was founded by a Clare man, Mr. Domhnal Slattery, in 2010. I hope we can further exploit opportunities in this area and hope the Minister of Finance will create more opportunities in the budget in this regard.

In my capacity as Chairman of the Oireachtas Joint Committee on Foreign Affairs and Trade, opportunities often arise to meet CEOs of airlines and aviation companies in general and I am aware that many airlines are discussing developing routes to Shannon Airport. Airlines make money when their aircraft are in the air. They can avoid long inspection delays at US international hubs by using the US pre-clearance facilities available at Shannon Airport, which means that when flights arrive in the United States, they are classified as domestic airline flights and land at domestic terminals. This is a very attractive option for airlines from the Middle East and Asia, in particular. There is potential to develop further business, especially on the cargo side, at Shannon Airport if the US pre-clearance facility were extended to cater for freight. If the airport were in a position to provide cargo pre-clearance facilities, it would be in a stronger position to compete for this business. I ask the Minister to pursue this possibility with his US counterparts when he is next in Washington DC.

Like many speakers, I am concerned about the existing, retired and deferred pensioners of the Irish airlines superannuation scheme, IASS, under section 33 of the Bill, now section 34. While the expert panel has published its recommendations, including that Aer Lingus and the DAA make additional contributions to plug the €780 million shortfall in the scheme, there remains considerable concern among the scheme’s members that, without an amendment to this section, their future benefits will be undermined. Many speakers have raised this matter.
There are approximately 5,000 deferred members of the scheme, workers

who left Aer Lingus and the DAA under the various redundancy schemes and spent 20 to 30 years working for these companies but who have not yet reached retirement age. They would have reasonably expected that when they reached retirement age, they would have receive the pension deferred for them when they left the company. They are very concerned that this may not be the case.

This section has been designed to facilitate implementation of proposals that emerge from the negotiating process to resolve the funding issue. The main contention is that, without amendment, the section could give wide-ranging powers to employers to transfer members, without consultation, to a new scheme. Concerns have also been expressed by many in the Shannon region and County Clare that the trustees of the scheme could make amendments to provide for the cessation of benefits and contributions by all members and their employers. The staff and pensioners have told me that their pensions have already been depleted owing to a number of factors. They fear that if total power is transferred to the IASS employers and trustees, their situation will deteriorate even further. Like other speakers, I ask the Minister to amend the section to address these concerns in order that there will be no confusion about the intent of the section and to clarify that it is not being introduced to undermine the members of the scheme.

As Chairman of the foreign affairs and trade committee, I meet airline CEOs, particularly from non-EU countries, and the issue of fifth freedom of the air rights is regularly raised with me. Fifth freedom rights would apply where non-EU airlines were allowed to pick up and drop off passengers at Irish airports en route to the United States. I very much support the recent call by Professor Jim Deegan, head of the department of economics and director of the national centre for tourism policy studies at the University of Limerick. In response to the publication of the national aviation strategy, he prepared a paper on behalf of the Shannon Airport marketing consultative committee proposing that the Government prioritise the awarding of fifth freedom rights to Shannon Airport. The airport is well placed, has the facilities, is not overcrowded and would be a great hub for many long-haul carriers to land there, use the pre-clearance facilities and travel on to the United States. Professor Deegan’s contention is that it would help to redress the economic imbalance between Dublin and the remainder of the country and complement the development of international aviation services at Shannon Airport. I concur with his views and ask the Minister to consider them.

The liberalisation of rights should not be extended to all Irish airports because extending fifth freedom rights to Dublin Airport would probably undermine the operations of the national carrier, Aer Lingus, in Dublin. It is important that we stimulate business at the other airports. Dublin Airport does not need these rights because it has sufficient business and is operating close to capacity. However, if these rights were transferred to other Irish airports, including Shannon Airport, it would benefit the national economy and play a significant role in assisting the new airport group at Shannon to grow its transatlantic business, both passenger and cargo.

Today marks a very important day for Shannon Airport. The passage of the legislation will end the uncertainty that hindered the airport’s development from 2004 until 2011. Shannon Airport is strategically the most important piece of infrastructure in the region, underpinning thousands of jobs in its industrial and tourism hinterland. We have seen the positive impact of Ryanair’s increased service from Shannon Airport and how busy the airport is in the mornings. There has been an impact on tourism in County Clare. Tourist numbers have increased in Kilkee, at Loop Head, Spanish Point, Ballyvaughan and Killaloe and this is directly attributable to the increased connectivity with Shannon Airport. The Wild Atlantic Way has been a great success for the west coast and was a very cheap project because the route along the beautiful coastline was already there. All it meant was the commitment to erect additional signs and have various points along the route to attract tourists to the entire region. Last year 18,000 people visited the newly opened Loop Head Lighthouse which this year, with the Cliffs of Moher, is one of the strategic points along the Wild Atlantic Way. It is a tremendous success for tourism on the west coast from County Donegal to County Cork.

Cork Airport also has a very important role to play and it is important that the two airports work together, although they must also compete. We are very lucky to have two transatlantic gateways into Ireland, a small country of 4 million people. I visited the Czech Republic this year and Prague, one of the most beautiful cities in Europe, does not have a year-round transatlantic service. Our two direct transatlantic links, through Dublin and Shannon airports, are extremely important. We should preserve them and hold onto what we have, ensure Irish carriers serve both airports and attract other airlines from the United States and the Middle East to use the pre-clearance facilities available here.
[Deputy Pat Breen: ] Given the determination of the management of Shannon Group, I have no doubt that the region has a bright future. I wish it well. I thank the Minister for his commitment to the region. Without it and were it not for the fact that he was direct, straight and got the business done, we would still be in limbo.
Minister Leo Varadkar’s Comments on the IAS Scheme for your information.
On the IAS scheme, some time ago I heard Ms Ingrid Miley, RTE’s industry and employment correspondent, refer to the scheme as the most complex industrial relations matter she had covered for some time. The issues relating to the scheme are complex, partly because the scheme is complex, inflexible and involves multiple employers. The issues relating to the scheme have been ongoing for a number of years and a resolution is urgently required. We will serve no one’s interests by kicking it even further down the road. The objective of the Bill is to facilitate implementation of whatever solution we all hope will emerge from the parties to the scheme. The report the expert panel brought forward last week is extremely important in this regard. As stated in my opening contribution, I will be tabling amendments to the Bill on Committee Stage. These will include removal of the provisions to which Deputy Dessie Ellis and others referred and which would have permitted the employers to withdraw from the scheme. I reiterate that these provisions were intended to be used only in a fall-back, as an alternative to a forced wind-up of the scheme by the Pensions Authority. We are taking the steps to which I refer in order to ensure that where such a wind-up occurred, there would be a better outcome for members. I will now turn to the Irish Airlines (General Employees) Superannuation Scheme, IASS. I want to make special mention of section 34 of the Bill which provides for amendment to the existing statutory provisions governing superannuation schemes in our State airport authorities. This section will also

facilitate changes, by the trustee, to the IAS scheme, which is the Irish airlines superannuation scheme. An important development since I was in the Seanad with this Bill has been the publication of the expert panel’s final report on the resolution of the industrial relations issues surrounding the scheme. Deputies will recall that the panel was established in March by ICTU, IBEC, my Department and the Department of Jobs, Enterprise and Innovation to identify how to resolve the IR issues relating to the problems in the scheme. This report is very welcome and points the way to finally dealing with the serious problems in the IAS scheme. The scheme, as Deputies know, dates from the 1950s and is a multi-employer scheme covering the majority of employees, pensioners and deferred pensioners in the State airports and in Aer Lingus.
Deputy Leo Varadkar: ] It also covers some of those who worked for SR Technics prior to closure of its operations at Dublin airport in 2009. All issues concerning the IAS scheme, including its rules and provisions, contribution rates and benefits are matters for the trustees of the scheme, its members, participating employers and, of course, the Pensions Authority, which is the national regulator of occupational pension schemes. I do not control the scheme and cannot impose or prescribe a solution for its problems. However, I do want to help and to see this long-standing issue resolved. I have done so through the expert panel and I am

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further assisting the process through the legislative amendments that I have provided for in this Bill, which I will explain later.
Of the members of the IAS scheme some 69% were or are Aer Lingus employees, 26% were or are DAA-SAA employees and 5% were employees of SR Technics. There are approximately 14,800 members in the scheme, split into three groups of similar size made up of current employees, known as “active” members, pensioners and deferred pensioners, the latter being people who have left the company but are not yet drawing down their pensions. The scheme is currently closed to new members-staff.
Under the IAS scheme, fixed contributions are payable by employers and members regardless of the funding position of the scheme. Both the benefits and the contributions are defined within the scheme rules. The scheme is registered and operated as a defined benefit scheme under the Pensions Authority criteria due to the benefits it seeks to provide and accounted for as a defined contribution scheme by the sponsoring employers due to the fixed funding covenant. In March of last year, the IAS scheme reported a deficit on the statutory minimum funding standard basis of €769 million. This deficit has arisen over the years as the companies and members did not put enough into the scheme to match the benefits that were expected or promised. Resolution of the issues will involve contributions from all the parties involved.
Because of the priority position of pensioners under the Pensions Act 1990, prior to the amendments contained in the Social Welfare and Pensions (No. 2) Act 2013, the residual funds that would be available for active and deferred members in the event of a wind-up of the scheme would be approximately 5% of benefit expectations. This is not an acceptable position and the employers and unions held extensive negotiations on the way forward under the auspices of the Labour Relations Commission, LRC, and the Labour Court. This ultimately led to Labour Court recommendations of May of last year. The trustees of the IAS scheme issued fresh proposals to the employers and unions in February last. These proposals include a number of benefit reductions, which affect active and deferred members and also pensions already being drawn down. The latter is permitted under the Social Welfare and Pensions (No. 2) Act 2013. These proposals have been the subject of ongoing discussions since then and the trustees have also asked that the position of deferred members and pensioners be taken into account in those discussions.
The expert panel examined the complex IR issues that remain to be resolved arising from the trustees’ proposals and the earlier Labour Court recommendations. The panel held a series of meetings with all the relevant parties including the DAA, SAA, Aer Lingus, the trade unions and representatives of deferred members and pensioners. I have asked that all parties engage constructively on implementing the panel’s recommendations and I am hopeful that they will recommend acceptance of its findings. It is important to emphasise the panel’s definitive view that these recommendations represent the best possible outcome that can be achieved. It is also the view of the panel that if this final opportunity to resolve this very protracted problem is not grasped now, the situation facing members of the IAS scheme will deteriorate further. I agree.
When, hopefully, the parties do reach agreement on the way forward, it will be important they have the necessary tools to ensure that it can be implemented. The amendments contained in section 34 of the Bill are designed to facilitate implementation of whatever proposals emerge from the current negotiations to resolve the IAS scheme difficulties. They do not pre-empt or anticipate what those solutions may be nor are they intended to undermine staff terms and conditions of employment. On the basis that the panel’s recommendations will prove acceptable to the parties, it is important that the legislative framework is fit for purpose and will not act as a barrier to implementation. This was always the intention of the provisions in section 34 of this Bill, namely, to facilitate the implementation of whatever solution was ultimately agreed for the future pension provision of IAS scheme members.
There has been some confusion about certain provisions in section 34, which I included to deal with a possible scenario - one which nobody wants to see - in which agreement on a way forward could not, ultimately, be agreed by the parties. This was no more than a pragmatic approach which I viewed as prudent given the complexities of this pension scheme and the challenges faced in resolving the current problems in it. Those particular provisions, which were intended to be used only in a fall-back situation, provide for a different option, an alternative to a forced wind-up of the scheme by the Pensions Authority, which would involve a somewhat better outcome for members. On the basis of the panel’s report and views expressed in the Seanad, directly to me by some Deputies and by interested parties, including the unions and representatives of the deferred members and pensioners, I have decided to delete these fall-back provisions. I will be tabling an amendment to this effect on Committee Stage, along with some other amendments to bring greater clarity to some of the other provisions. I will take Deputies through this section in detail on Committee Stage.
In summary, provision is being made for employees, if they wish, to cease making contributions to the IAS scheme when they become a member of another scheme. One of the amendments I will be tabling on Committee Stage is to clarify that this option is entirely voluntary on the part of employees. It is a bone of contention among some employees who are members of the IAS scheme that they must continue to contribute to the scheme even though, given the substantial deficit in the scheme, any such contributions may accrue little benefit for them in the future. However, ceasing contributions will not solve the serious problems in the IAS scheme, namely, the deficit, which still must be addressed by the parties. Provision is also being made for new pension schemes in the airport authorities, which will require ministerial approval, that do not have to replicate the inflexibilities and flaws of the IAS scheme. This will ensure that if the parties agree that new pension schemes for future service are to form part of the solution to the problems in the IAS, the legislative tools are available to the airport authorities to establish such schemes.
There are approximately 1,250 staff in DAA and SAA that are not members of any occupational scheme pending the resolution of these issues. While they can avail of personal retirement savings accounts, PRSAs, it is preferable that the airport authorities, similar to other companies, have pension schemes in place for their staff. When considering pension provisions it is important that we bear in mind the needs of all members of the current scheme and those employees currently not included in the scheme. There can be a tendency at times to focus on those with existing benefits rather than more broadly on all staff, including younger and newer employees. These full-time employees are unusual in the public and semi-State sector in that in many cases they do not have a pension scheme. The ladder has been pulled up on them due to the inflexibilities and unsustainability of the existing scheme. I want to put this right and to give them proper pension provision for the future. Clarification is also being provided on the powers of the trustee of the IAS scheme, particularly in the context of ensuring that an agreement among the parties on the way forward can be implemented. In the event that the panel’s recommendations prove acceptable to the parties, and I hope they will, the trustees and the employers need the legislative amendments that I have included in the Shannon Bill. Those recommendations, or indeed any solution agreed among the parties, cannot be implemented without these amendments having been made.