Reviving airports is vital to reboot economy

Data released this week by the Irish Aviation Authority underscores the challenges facing Irish airports and their role in our economic recovery.

Traffic in Cork was down 3.4% during April from year earlier levels, while in Shannon, it was 9.8% worse, and Dublin was flat.

In the first four months of 2012, traffic is down at all three airports and activity levels are the lowest in over 10 years. These poor volumes occur despite over €1bn being spent on new terminals in both Dublin and Cork over that period.

Radical ideas have to be debated in an effort to reverse these trends. Many companies encounter difficult times but they may not be key to a nation’s economy. Airports, in contrast, are critical economic gateways for our island economy.

Thriving and busy airports are enablers of business, and the tourism sector in particular, for a small open economy like ours, so getting the airports in fighting shape is a necessary piece of the strategy to reboot Ireland.

Separating Shannon from the Dublin Airport Authority, as announced last week, is a good start. However, it is being moved in to a state controlled orbit under the auspices of the IDA, Enterprise Ireland and Shannon Development.

The risks of a political morass in such a concoction are high and I would highly recommend getting a kick-ass chairman from the private sector to make this new entity workable. Denis Brosnan was suggested in the media as a candidate and he would be ideal for what will be a tortuous but needed revamp of the whole Shannon complex.

The other airports require even more radical attention. The DAA retains a net debt of over €700m and its employees have a pension fund in deficit. Revenues are under pressure and management are implementing much needed cost-cutting initiatives. The possibility of further actions should be openly discussed.

The minority stake in Dusseldorf Airport is a valuable asset that could help deleverage the DAA. So too is Aer Rianta International, a successful duty free chain that operates outside of Ireland.

If our core mission is to take Ireland out of the troika receivership process, we must focus on assets inside the country and use those outside the jurisdiction to improve the competitiveness of infrastructure at home.

I’d sell Aer Rianta International and even contemplate selling terminals in Dublin as a means of eliminating the DAA debt and giving its managers breathing room to pursue more airline business for Ireland.

Change, especially radical restructuring, is always an uncomfortable process for all stakeholders but the problems facing our airports are national matters. While it may be easy to see this as a glass half empty, I’d argue the opposite.

Because of the huge expenditure over the past five years we now have a well invested set of assets that can be leveraged for the country’s gain. For example, there is enough headroom in Cork and Dublin to increase throughput by over 20% without spending a penny on the facilities.

The key to unlocking that volume potential is price of access. To add more capacity and entice new carriers to serve the country, we need knock-out price packages that make growth happen.

To have competitive prices, the DAA needs a zero debt burden that releases it from interest payments which then allows a cut in costs for its airline customers. The only way of doing that is by selling assets. Last month Edinburgh airport, with 9m passengers, sold for £800m (€1bn) to a global infrastructure fund.

Dublin Airport alone has 19m passengers. Just imagine what its terminals could fetch as part of a radical restructuring plan?

* Joe Gill is director of research with Bloxham Stockbrokers