Dublin had ‘no role’ in ARI’s early success

Former Shannon Airport director Liam Skelly has criticised the decision to leave Aer Rianta International with the Dublin Airport Authority. He outlines to Owen Ryan how he sees things

 

 

“SOME weeks ago, The Clare Champion had a short report on the contents of a letter received by Shannon Town Council for Minister Varadkar. The council had presumably asked why Aer Rianta International Ltd (ARI) was not restored to its rightful owner, Shannon Airport, when it was freed from the control of the Dublin Airport Authority (DAA) on January 1 2013. In his reply, he said that while Shannon may have had some historical connection with ARI, it really was always part of the DAA/AR group and that it can benefit only from the funding it can get from the DAA.

“I have been reading his comments over the last year or so with growing annoyance as I know that the DAA took €230 million in dividends in 2007, three years after getting ownership of ARI. It is also interesting that their accounts for 2011 show that they borrowed another €120m from ARI and of course the DAA results for 2012 just published show that ARI made €27m whereas Dublin Airport made €2m. So who is depending on whom?” he stated.
He outlined the structure that existed in Aer Rianta, prior to the separation of the three State airports. “It is important to understand the management structure of Aer Rianta, which lasted for 30 years until the State Airports Act became law in 2004.

“It consisted of a head office, which was based in Dublin but could have operated satisfactorily based in any town in Ireland. You then had three operating units – one at each airport reporting to the chief executive and board through an airport manager. The company operated a devolved management responsibility system. This meant that each airport manager was responsible for the profits and successful operation of the airport under his/her control. He/she was encouraged to be innovative in ways that might improve traveller numbers which were so important to financial success.”

He outlined how Shannon was inspired to start up ARI. “In the autumn of 1987, the late Martin O’Herlihy (former TWA manager, Shannon) but now employed by Aer Rianta Shannon as consultant, which included monitoring the Aeroflot operation which was of such importance to Shannon, called to my office with Boris Krivchenko. Mr Krivchenko was Aeroflot manager in Ireland and informed us that something that might be of interest to Shannon, was happening in Moscow.

He said Aeroflot had started discussions with Pan Am with a view to commencing a Moscow/New York passenger traffic service on a co-share basis using a Pan Am jumbo jet service. He said Pan Am had brought along a representative from a duty-free shopping company working in Kennedy Airport, as part of their negotiating team.
“We agreed that while it might be difficult to dislodge these people, we should do everything possible to do so. We started to canvass every Russian politician of consequence transiting Shannon by day or night, including Foreign Minister Edward Shevernadze and Mr Kamensev, the then deputy prime minister once we were alerted by Mr Krivchenko. We took them through the shop, told them it was the first of its kind in the world, set the standard for other duty frees and was very profitable. We said we had opened discussions with Aeroflot and hoped to be their partner and be allowed to open the first duty free on Russian soil in Moscow International Airport.”

Later in the year, their efforts bore fruit. “In October 1987, we flew to Moscow to meet senior Aeroflot officials. The meeting commenced in mild confusion.  Aeroflot were interested in getting aircraft painted and we were interested in opening duty-free shops in Moscow airports. We then suggested that we would be able to marry both sides’ requirements, in a single plan. If they allowed us to open shops in partnership with them, we were prepared to organise a painting facility in Shannon to meet their needs. We told them that out of their share of the proposed duty-free joint ventures’ profits, they could pay us for their painting requirements. We were careful to structure the joint venture on the basis that Aeroflot would receive a greater share of the profits.

“We returned to Ireland and informed head office of our progress. In the meantime, Aeroflot and Pan Am concluded their agreement without including the duty free in their arrangement. After a few trips to Moscow, we were informed that we were to be Aeroflot’s partner in this great adventure. The actual shops for the airport were built in Ireland and trucked overland to Moscow. We promised to have all the work completed and ready for opening on the first day of May (Labour Day) 1988 almost 25 years ago.”

He stated that Dublin had no role whatsoever in ARI’s early successes. “No matter how the minister attempts to present a different scenario, the true facts remain that Dublin Airport had no contact in any way with ARI for those 16 years and to say anything else is simply a misrepresentation of the facts.”

Regarding the background to the decision to separate the State Airports, he said, “During the years 2002-3, a growing rift developed between Aer Rianta Board on the one side and the Minister for Transport, his department and the Progressive Democrats in particular on the other. The board took exception to an idea being floated that three independent airports each a stand-alone entity were about to be set up. The chairman of Aer Rianta, Mr N Hanlon said openly that he would oppose the move. In an interview with The Irish Times on the April 4, 2003, the late minister said, “I want the airports to be entirely separate and competing with one another”. It soon became apparent that the required legislation to change Aer Rianta from a centrally controlled operation to having each airport responsible totally for its own destiny was about to be enacted. It was expected that the Aer Rianta board and head office would become defunct and that any assets held by Aer Rianta would be listed, valued and distributed in a fair and equitable manner between the three new independent airports. It would also naturally be expected that as ARI had its base in Shannon and had no connection whatsoever with either Cork or Dublin, it would slot back into its geographical and spiritual home reporting to the board of the new Shannon Airport Authority.”

However, he said Shannon lost out and Dublin was a massive winner under the State Airports Act. “The sequence of events which followed demonstrated clearly that Shannon Airport was to be a pawn in a scheme devised to ensure that Dublin Airport, at the end of the debate and after deputies voted, would emerge with total control and ownership of the old Aer Rianta company that was supposed to be dismantled and its assets distributed to the three independent airports. Of course, they also took ownership of Aer Rianta International and its accumulated profits of €100m and its investments in Birmingham and Hamburg, which in 2007 realised €355m for them and they continue to own a very valuable 20% stake in Dusseldorf. The DAA were also gifted ownership of the Great Southern Group, which enriched them to the tune of €265m when they disposed of it in 2007.

“In total, the DAA walked away with €720m with the passing of the State Airports Act. Shannon Airport’s share would be something in excess of €300m and the ongoing loss of ARI profits, which last year provided a profit of €27m for the DAA. Shannon’s money was spent by the DAA in the building of Terminal 2. The expenditure on this terminal is allowing the DAA to attract to Dublin more and more traffic with less traffic using Shannon. The latest statistics show 80% of USA visitor numbers to this region arrive through Dublin Airport.”

The impact on Shannon has been severe, he claimed. “Shannon was demoted and stripped of its very valuable company ARI. It was also denied any division of all Aer Rianta’s assets. All this had a disastrous effect on the whole Shannon Region. It was left with its debt of €65m, which rose to €105m under the DAA’s functional management system, which allowed all head office officials to visit Shannon and bypass the airport manager and issue orders directly. They changed the title of the Shannon Duty Free shop which had helped to get us ARI in the first place to a ridiculous name called the “Loop”. Dysfunctional management might be a more appropriate name for this system. It is unbelievable that this State would help an airport that already had 18 million passengers and everything going for it and that a small airport in the Mid-West would be let sink or swim. I believe strongly that no court would condone this situation and certainly not the European Court of Justice.”