Published on November 28th, 2016 | by Jim Lee0
Public Service Obligation (PSO) air services routes North and South
In 2011, a decision was taken by the Irish Government to cease Exchequer subsidies for four Public Service Obligation (PSO) routes, linking Dublin with the airports in Galway, Sligo, Knock and Derry. That decision followed on from the recommendations of a Value for Money Review on Exchequer support for the Regional Airports Programme, which took into account a number of factors, including the performance of the services and the requirement to make best use of scarce Exchequer resources. As a result, the only funding available from the Exchequer to support air services is that devoted to two remaining PSO routes, namely Donegal/Dublin and Kerry/Dublin. In the circumstances the Government has confirmed there are no plans to extend the PSO regime to any other routes, or to revisit the 2011 decision.
Under EU regulations, member States may impose public service obligations on routes to maintain appropriate scheduled air services, which they deem are vital for the economic development of the regions they serve. Such ‘obligations’ must respect the conditions and the requirements set out in Articles 16-18 of the Air Services Regulation 1008/2008.
In particular, in the case where no air carrier is interested in operating the route on which the PSO has been imposed, the Member State concerned may restrict the access to the route to a single air carrier and compensate its operational losses, resulting from the PSO. The selection of the operator must be made by public tender at Community level.
All impositions, modifications and abolitions of a PSO, as well as the corresponding calls for tenders, must be announced in the Official Journal of the European Union.
Under the Essential Air Services Programme, these two PSO air services are funded by the Department of Transport, Tourism and Sport. The contract for these two services commenced on 1st February 2015, following a competitive tendering process. Both routes are operated by Stobart Air, at an average cost per annum of €7.6 million. The contract provided for a term of two years initially and subject to a satisfactory review after 18 months, provision was made for it to be extended for an additional year.
A review was undertaken recently into the performance of the operator of these two air services and the contract has been extended for a third year, from 31st January 2017 to 31st January 2018.
The contract contains certain performance requirements in relation to cancellations and delays. For example, the number of flights cancelled for reasons directly attributable to the air carrier shall not exceed 2% on an annual basis and the number delayed by more than 30 minutes, again for reasons attributable to the carrier, shall not be more than 20%. Financial penalties are provided for in the contract for unsatisfactory performance. In order to comply with these requirements, Stobart Air submits monthly reports to the Department on the operation of both services, including details of any flights which have been delayed or cancelled. Stobart’s overall performance last year was well within these thresholds, albeit that weather, which is outside their control, was a factor in a number of cancellations.
The Aran Islands
The Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs transport provides subsidised ‘life-line transport services’ to the inhabited offshore islands and provides supports for small-scale capital works on the islands. The transport services operate to 20 inhabited offshore islands in counties Donegal, Mayo, Galway and Cork to which passenger ferry, bus, cargo and air services are provided by a total of 24 contracted operators. The Department’s budget for 2016 for issues related to the islands amounted to €6.631 and by the end of the year, up to 60% of this budget will be spent on transportation services to the Aran Islands.
The Aran Islands are served by both ferry services and a PSO air service to the mainland. Both services are currently up for renewal but the procurement process has not been without its difficulties.
The contract for the ferry service to the Aran Islands by Island Ferries Teo ran into difficulties, when the operator, took the decision in October to withdraw the service from mid-November until mid-March, due to what it describes as ‘policy decisions beyond its control’. This referred to on the ongoing dispute in respect to levy charges imposed at Cill Rónáin harbour by Galway County Council, which followed a 2011 bye-law that introduced ‘per-passenger’ levies replacing the previous, ‘per vessel’ system that was in place. The contract has had to be extended again to 1st December in an attempt to allow an amicable resolution to be reached between the Government and Galway County Council and secure a permanent service for the islanders. If not all ferry services to and from the Island will be then withdrawn from then until the 17th March 2017. The extension will allow county council members to discuss the company’s latest proposals, at their next meeting on 28th November, ahead of the deadline.
In relation to the PSO air service to the Aran Islands, readers will recall the controversy that has surrounded the most recent tender process (see here). Aer Arann Islands has operated the service for more than 40 years, but the current contract for provision of an air service for the islands ceased on 30th September and efforts to secure a replacement, led to the deadline for receipt of tenders being repeatedly pushed back a number of times this year until it finally expired on 16th September. With the temporary contract scheduled to be terminated on 30th September, Aer Arann Islands had been forced to place its staff on protective notice, pending resolution of the issues. On 26th September it was confirmed the Aer Arann Islands contract would be again extended, as it is now unlikely that a new service contract could be put in place until later this year. The further extension was to ensure there would be no interruption of the existing service.
When the Government re-advertised the tender In April, it was specified that the service would operate between the islands and Aerfort na Mine in Inverin, owned by Aer Arann Islands. In July, Minister of State at the Department of Arts, Heritage and the Gaeltacht, Seán Kyne, confirmed that negotiations between Aer Arann Islands and the Government over the new contract were deadlocked and this led to the three extensions of the contract.
In October, he said that the tendering process was still “underway”, but although the Request for Tender had set out the maximum passenger fees that could be charged under the proposed contract, he was not in a position “at this stage” to say what level of fees would be charged by the tenderer awarded the contract. A final government announcement is awaited.
City of Derry Airport
In a piece posted on 20th September, we reported that NI’s First Minister, Rt Hon Arlene Foster MLA and Deputy First Minister, Martin McGuinness MLA, had confirmed on 19th September, that the Northern Ireland Executive would provide “up to £7 million (around €8.17 million) support for the North-West to assist development and growth around the City of Derry Airport (CoDA)”. Under the deal, the Executive would provide up to £2.5 million (around €2.92 million) in route development support and a further £4.5 million (around €5.25 million) capital investment. This funding would be made “in partnership” with Derry and Strabane District Council.
It was also confirmed that an application for a PSO service from Derry to London had been lodged with the European Commission for approval. On 29th October an Information notice was published by the Commission in respect of six routes from City of Derry Airport, namely to Heathrow, Gatwick, Stansted, Luton, London City Airport and Southend. The notice, ref 2016/C 401/08, constituted an “invitation to tender in respect of the operation of scheduled air services in accordance with public service obligations”. The period of validity of the contract is March 2017 to April 2021 and the deadline for submission of applications and tenders was 61 days from the publication in the Official Journal (i.e. from 29th October).
In relation to a proposed link from Derry to Dublin, announced in November 2015 by Isle of Man virtual airline CityWing (that sells tickets on flights operated by Van Air Europe), and subsequently cancelled, despite an offer of a £200,000 (around €233,362) subsidy offer from the UK Department for Transport under the Regional Air Connectivity Fund. CityWing had indicated that it could not make the route viable without additional financial support. A double daily service with a 19 seat Let L-410 Turbolet twin-engined commuter aircraft had been proposed and the Dublin Government had also been asked for financial support. While the Government would very much welcome a Dublin – Derry route, it did not have any schemes similar to the UK Government’s Regional Air Connectivity Fund or Exchequer funding available to support new route start-ups. Interestingly it was revealed that Exchequer subvention for the previous PSO air services on the Derry/Dublin route from 2006 to 2011 amounted to €13.625 million. Details are set out in the following table:
|PSO subvention Derry/Dublin route from 2006 to 2011 (Contract ended in July 2011)|
While the Department for Transport funding offer “remains on the table for this operator” it is unlikely to be taken up any time soon.
However, a more important issue for Northern Ireland Airports and indeed those in the UK is the UK Government’s air passenger duty (APD). In his Autumn Statement to Parliament, the Chancellor Philip Hammond’s announced that, given the “strong interaction” with EU law, his government did “not intend to take specific measures now, but intends to review this area again after the UK has exited from the EU”. In addition to those in Northern Ireland, pilots particularly those represented by BALPA, have long been calling on the government to scrap air passenger duty. BALPA on behalf of its members have expressed disappointment that a decision has been pushed back until after Britain’s exit from the EU. This is despite a recent PwC report that said abolishing APD would boost UK GDP by 1.7% and create 61,000 new jobs by 2020.
In a comment, BALPA General Secretary, Brian Strutton, said: “Last week’s figures from PwC show just how beneficial scrapping this unfair tax would be to the economy as a whole.
“While it’s encouraging that the government is open to reviewing air passenger duty, pilots are disappointed that once again they are left waiting for a firm decision on if it is to be scrapped.
“BALPA has been calling for an end to APD for many years and especially post-Brexit we need to ensure the British aviation industry remains competitive”