Business Irish

Monday 19 March 2018

Turbulent times

Downgrade, falling passenger numbers and stormy Ryanair relationship loom large on radar

This week's cut in its credit rating is the latest setback for Dublin Airport Authority (DAA) boss Declan Collier. With passenger numbers still falling and the Ryanair 'jobs' controversy rumbling on, Mr Collier is facing his biggest challenge since he took over at the DAA five years ago.

On Tuesday, ratings agency Standard & Poor's (S&P) announced it was cutting the DAA's credit rating from A- to BBB+. This is the second downgrade suffered by the DAA in less than 12 months. Last March, S&P cut its credit rating from A to A-.

While the cut in its credit rating -- one of a series of downgrades by S&P of airport operators and infrastructure companies -- will have little impact on its day-to-day business, it is still bad news for the DAA.

It has two bond issues listed on the Irish Stock Exchange. In 2001, it raised €250m from the bond markets and in 2008 it raised a further €600m.

While this week's credit rating downgrade will have no impact on the 2008 bonds, which don't mature until 2018, the twin downgrades have major implications for the 2001 bonds, which mature next year and will have to be refinanced. The DAA is paying an interest rate of 6.15pc on the 2001 bonds.

What the two downgrades mean is the DAA can expect to pay a much higher interest rate on any new bond issues.

With the DAA committed to spending at least €610m on a new second terminal and associated facilities at Dublin Airport as well as the proposed €4bn 'Dublin Airport City', which it hopes to develop on 350 acres it owns to the east of Dublin Airport, it can ill-afford the higher interest charges these downgrades will bring.

When cutting the DAA's credit rating, S&P cited falling passenger revenues as the main reason.

After peaking at 23.5 million in 2008, passenger numbers passing through Dublin Airport have since dipped sharply due to the impact of the recession. The figures plunged by 12.5pc to 20.5 million in 2009.

Falling passenger numbers have played havoc with the DAA's finances. While it has yet to publish its 2009 results, Mr Collier has already warned that the pre-exceptional profits of €78m recorded in 2008 are likely to give way to losses in 2009.

The collapse in passenger numbers at Dublin Airport could not have been more badly timed for the DAA. During the boom years, as passenger numbers rose and rose at Dublin Airport -- with figures jumping by more than a third between 2004 and 2007 -- the need for extra terminal capacity became obvious.

Unfortunately, the issue of who should build and operate the new terminal became embroiled in politics.

Not unnaturally, the DAA wanted control of the new terminal. It was supported in this position by former Taoiseach Bertie Ahern, who was anxious to protect marginal Fianna Fail seats in north Co Dublin.

In the opposing corner was the combative Ryanair boss Michael O'Leary, who wanted to build his own competing terminal.

Although he was ultimately unsuccessful in his efforts to block the DAA's plans for a second terminal, repeated legal challenges meant that work did not begin on Terminal 2 until October 2007.

When it opens for business in November, Terminal 2 will have the capacity to handle 15 million passengers a year -- more than doubling Dublin Airport's existing capacity.

Planned in the go-go years of the Celtic Tiger, Terminal 2 opens for business when passenger numbers have been savaged by the economic downturn.


However, it should be borne in mind that airport terminals are long-term projects. Not alone was the chronic congestion experienced at Dublin Airport during the mid-noughties the result of decisions that weren't taken in the 1980s and 1990s, passengers will still be passing through Terminal 2 well into the 2030s and beyond.

The Terminal 2 controversy was perhaps the most serious manifestation of the dysfunctional relationship between the DAA and Ryanair, its biggest customer.

Down the years, the pair have persistently squabbled over any number of issues. Ryanair has consistently argued that the new terminal was "gold plated" and would end up costing €1.3bn.

Nonsense, replied the DAA. When associated facilities such as aprons and passenger gates were excluded, the total cost of Terminal 2 would be only €395m, it said.

When Ryanair lost the Terminal 2 battle, the struggle shifted to the issue of the increased charges needed to pay for the new facility.

Last November, the Aviation Regulator granted the DAA a 33pc increase in airport charges over a five-year period. Ryanair's riposte was to call for the closure of the Aviation Regulator's office.

The DAA responded by claiming that, even allowing for the increase, charges at Dublin Airport were lower than those at comparable European airports.

It pointed out that Dublin's charges were lower than those of Heathrow, Stansted, Gatwick, Schipol and several other major European airports.

This month, the feud between the two organisations erupted once again when Ryanair alleged that the Department of Enterprise and Employment had failed to respond to its proposal to establish an aircraft maintenance facility at Dublin Airport's Hangar 6 employing up to 500 former SR Technics workers.

Ryanair refused to deal directly with the DAA on the Hangar 6 issue. It also sought to purchase the hangar outright.

In this week's statement to the Joint Oireachtas Committee on Transport, Mr Collier responded that Ryanair had no difficulty dealing directly with the DAA to rent Hangars 1 and 2, which also came on the market after the closure of SR Technics last year.

However, Mr Collier's statement also made it clear that Aer Lingus had exercised its pre-emption rights dating from the early-1990s to retain control of Hangar 6 and thus exclude Ryanair.

Clearly a situation where the DAA and its largest customer are at daggers drawn -- Mr Collier and O'Leary haven't had a face-to-face meeting since 2007 -- is not ideal.

Despite Ryanair's loud protestations to the contrary, it is difficult to resist the conclusion that there is a pair of them in it, with the DAA adamant that Mr O'Leary hasn't requested a meeting since then and that Mr Collier's door is always open if he did want to arrange a meeting.

In the short term, there is probably not a lot that Mr Collier can do to improve the DAA's fractious relationship with Ryanair. A bigger challenge will be to get passenger numbers growing again. That won't be easy in the depressed economic climate.

Further complicating matters is the fact that, more than five years after it took over the running of Dublin Airport from Aer Rianta, the DAA is still responsible for Cork Airport and Shannon Airport.

This is despite the fact that Cork and Shannon were supposed to be hived off to separate airport authorities following the establishment of the DAA in October 2004.

Mr Collier was recruited from oil company Exxon to run the new organisation at the beginning of 2005.

Still, no matter how bad things get between the DAA and Ryanair, Mr Collier can draw some consolation from the fact that Ryanair needs the DAA almost as much as the DAA needs Ryanair, with six out of Ryanair's top 10 routes flying out of Dublin.

Like a long-quarrelling married couple, the two organisations seem fated to keep squabbling for many more years.

Irish Independent

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