Regional Airports Programme 2015 – 2019

IRELAND‟S REGIONAL AIRPORTS PROGRAMME 2015 – 2019

Airports Division July 2015

Ireland’s Regional Airports Programme 2015 – 2019

CONTENTS Page

PART 1

Background 5

Revised EU Guidelines on State aid to airports and airlines 9

The Altmark Judgment 12

Financing of Airports – Categorisation of Airport Activities and 13 Public Policy Remit

IWAK Study 14

Ireland‟s National Aviation Policy 15

The 2014 EU Guidelines and Ireland‟s National Framework 17

Conditions to be met by Regional Airports to qualify for funding 18 under PART 2 or 3

PART 2

Core Airport Management Operations/Activities (OPEX) 20

PART 3

Regional Airports Capital Expenditure Grant (CAPEX) Scheme 25

PART 4

Public Service Obligation (PSO) Air Services Scheme 31

PART 5

Transparency & Monitoring 34

PART 6

Appendices 35

1. Tables -

1.1 providing an analysis of financial performance based on the

most recent audited financial statements, 1.2 giving a breakdown of the administrative expenses for the same period, 2.1 providing an analysis of projected performance for the current year 2.2 giving a breakdown of projected administrative expenses for the same period.

2. Guidance Notes - Regional Airports Core Airport management operational expenditure Subvention (OPEX) Scheme

3. Guidance Notes - Application of 2014 EU Guidelines on State aid to airports and airlines to CAPEX Scheme

4. Framework for Public Service Obligations (PSO) air services

5. EU Commission Decision: State aid SA. 39757 (2015N) – Ireland – Regional Airports Programme 2015 – 2019.

The contents of this Regional Airports Programme reflect developments at EU level, both in terms of the 2014 Guidelines on State aid to Airports and Airlines and the relevant judgments, to date, arising from a number of cases heard before the European Court of Justice. Any queries in relation to its contents should be addressed to –

Airports Division (Regional Airports Programme 2015-2019) Department of Transport, Tourism & Sport 44 Kildare Street Dublin 2 IRELAND Email: [email protected]

July 2015

IRELAND‟S REGIONAL AIRPORTS – Donegal Airport, Ireland West Airport Knock (IWAK), Waterford Airport and Kerry Airport

Donegal

IWAK

Kerry Waterford

Ireland‟s State Airports

1. 2. 3.

Dublin Shannon Cork

PART 1

BACKGROUND

Regional airports in Ireland were developed in the 1980s to provide for improved connectivity both nationally and internationally. There was a recognition that such airports could deliver significant social and economic benefits to the regions that they serviced at a time when rail and road connections were poor. Accordingly, the focus of policy on regional airports has been on assisting in optimising the contribution that the airports can make to balanced regional development.

However, the development of the major interurban roads programme and improvements to the rail network in the intervening period has reduced the importance of regional airports for connectivity within Ireland. Today, regional airports are viewed as being important because of a level of international connectivity that they bring to a region for tourism and business. That connectivity is seen as being a significant contributory factor underpinning Ireland‟s economic recovery and sustainable development into the future.

Following a Government Decision in June 2011, which arose from a Value for Money Review published earlier in that year, the Exchequer provided financial support, under the Regional Airports Programme 2011 – 2014, to four regional airports (Donegal, Ireland West Airport Knock (IWAK), Kerry and Waterford), where previously it supported six.

That financial support was administered by the Department of Transport, Tourism & Sport through three separate Schemes –

 A Core Airport Management Operational Expenditure Subvention (OPEX) Scheme - the general economic interest that is served by an airport in a regional location is recognised and supported. The Department of Transport, Tourism & Sport‟s Core Airport Management Operational Expenditure Subvention Scheme (OPEX) operated in accordance with the EU Commission‟s 2005 Guidelines on airport funding. Under the Scheme, the Minister could compensate the regional airports for “subventible losses” - the costs incurred in providing core airport services, insofar as these costs could not be fully met by prudent commercial management and from any surpluses generated by non-core activities, such as car parking charges and catering. The Scheme expired on 31 December 2014.

 A Regional Airports Capital Expenditure Grant (CAPEX) Scheme - Additional funding was also provided to the regional airports to support capital investment under a Regional Airports Capital Expenditure Grant Scheme. In recent times, such grant aid has only been given to those projects or project elements that are essential for safety and security reasons and were limited to 90% of the total eligible costs. The Scheme also ended in December 2014.

 A Public Service Obligation (PSO) air services Scheme – which provides financial support to airlines, based on a competitive tender, to operate essential air services. It is a response to a need to ensure appropriate connectivity in areas not otherwise served by adequate transport services. The PSO air services routes were Donegal/Dublin (operated by Loganair) and Kerry/Dublin (operated by Aer Arann/Stobart Air). Previously, PSOs air services were operated on Galway/Dublin and Derry/Dublin routes (ceased in 2011). The contracts under the 2011 – 2014 Regional Airports Programme PSO Scheme were due to end in November 2014, but were extended to end January 2015 to allow for a new public tender competition to be held.

Table 1: Distances by road between the various airports

Distance by road (where appropriate) between airports

State Airports Northern Airports Ireland Dublin Cork Shannon IWAK Donegal Derry

Donegal 307kms 484kms 358kms 205kms N/a 123kms 4hrs16mins 6hrs37mins 5hrs3mins 3hrs2mins 1hr52mins

Waterford 190kms 136kms 167kms 292kms N/a N/a 2hrs12mins 1hr59mins 2hrs28mins 3hrs59mins

Kerry 300kms 105kms 117kms 265kms N/a N/a 3hrs29mins 1hr32mins 1hr38mins 3hrs32mins

IWAK 214kms 274kms 158kms N/a 206kms 202kms 2hrs48mins 3hrs46mins 2hrs5mins 3hrs2mins 2hrs52mins Source: AA Route Planner

State funding of regional airports under the above three Schemes was administered by the Department in compliance with the 2005 EU Guidelines on State aid to airports and airlines1 and in the case of the PSO air services Scheme, in compliance with Regulation (EC) No. 1008/20082. Furthermore, the Minister for Transport, Tourism & Sport made it clear, in providing funding to the four regional airports, the importance of working towards achieving financial viability in the medium term.

Table 2 provides details of the number of passengers (including those on the PSO routes) carried, the Exchequer supports under the PSO Scheme for each route, along with level of supports under the OPEX and CAPEX Schemes during the lifetime of the 2011 – 2014 Regional Airports Programme. In addition to the PSO air services on the Galway and Derry routes ceasing in 2011, Exchequer supports under the OPEX and CAPEX Schemes to both Galway and Sligo also ceased in 2011 following a Value for Money Review3.

1 EU OJ 2005/C 312/01 2 EU OJ L 293 31.10.2008: Regulation (EC) No 1008/2008 of the European Parliament and of the Council of 28 September 2008 on common rules for the operation of air services in the Community 3 Value for Money Review of Exchequer Expenditure on Regional Airports Programme 2011

Table 2: Total number of passengers/Exchequer funding 2011 - 2014

Number of passengers (all)(1) Exchequer funding (OPEX & CAPEX) Airport €m 2014 2013 2012 2011 2014 2013 2012 2011 Donegal 35,415 33,768 29,326 40,100 431,759 339,474 111,417 2,153,943

IWAK 703,265 665,393 685,781 654,553 2,474,013 2,667,599 1,288,651 665,189

Kerry 295,238 305,822 286,442 310,905 640,380 1,177,876 2,183,946 1,349,348

Waterford 34,607 28,169 76,554 81,521 1,572,004 1,483,085 2,566,794 2,067,653

Galway - - - 69,101 - - - 2,532,135

Sligo - - - 7,111 - - - 624,065

Totals 1,068,525 1,033,152 1,078,103 1,163,271 5,118,156 5,668,034 6,150,808 9,392,333

Number of passengers (PSO only)(1) Exchequer funding (PSO)(2) PSO Route €m 2014 2013 2012 2011 2014 2013 2012 2011 Donegal/ 23,755 21,404 19,796 25,187 3,701,295 3,598,803 3,451,683 4,719,428 Dublin Galway/ - - - 11,547 - - - 2,190,078 Dublin Derry/ - - - n/a - - - 2,857,753 Dublin Kerry/ 37,303 32,887 31,003 27,178 4,061,373 4,021,261 3,917,964 359,721 Dublin Totals 61,058 54,291 50,799 63,912 7,762,668 7,620,064 7,369,677 10,126,980

Total annual Exchequer funding under the Regional 12,880,824 13,288,098 13,520,485 19,519,313 Airports Programme 2011 - 2014 Total 2011 - 2014 Programme Exchequer funding 59,208,720

(1) Based on information provided by airports (2) PSO supports are paid directly to the carrier and NOT to the airport

REVISED EU GUIDELINES

The EU‟s initiative to update and revise the 2005 Guidelines sets out the parameters for both CAPEX and OPEX supports for regional airports post 2014, along with Start-Up aid for airlines. The revised Guidelines (the „2014 Guidelines‟), which replace the 1994 and 2005 Guidelines and were adopted by the Commission on 20 February 2014, limit the CAPEX and OPEX supports which can be given by the State (Exchequer and Local Authorities) under any future Regional Airports Programme.

The Guidelines were published4 on 4 April 2014 and became applicable on that date. Ireland is required to bring existing Schemes into line with the 2014 Guidelines within 12 months following that publication date. As the 2011 -2014 Regional Airports Programme Schemes were due to expire at end 2014, it was decided that the Schemes post 2014 would be developed in line with the new Guidelines.

The 2014 Guidelines take stock of the new legal and economic situation concerning the public financing of airports and airlines and specify the conditions under which such public financing may constitute State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union, and when it does constitute State aid, the conditions under which it can be declared compatible with the internal market.

The Commission considers only State aid which is proportional and necessary to contribute to an objective of common interest can be acceptable. In this context, it believes that operating aid (OPEX) constitutes, in principle, a very distortive form of aid and can only be authorised under exceptional circumstances. The general view expressed through the 2014 Guidelines is that airports and airlines should normally bear their operating costs and public investment should be used to finance the construction (CAPEX) of viable airports meeting the demand of airlines and passengers.

However, in recognition of the difficulties that some smaller regional airports are faced with, the 2014 Guidelines continues to allow compensation for uncovered operating costs for a transitional period, where such airports qualify for such supports under the Guidelines. This reflects the important role played by such airports in terms of regional connectivity of isolated, remote or peripheral regions of the EU. This is of particular importance to Ireland, given its island status and peripheral location in Europe.

4 EU OJ 2014/C 99/03

There are, however, a number of changes to the previous levels of permissible State supports under the 2005 Guidelines, which will impact on regional airports from 2015 onwards and the need to secure alternative funding in addition to State support. Whereas the 2005 Guidelines left open the issue of investment aid, the 2014 Guidelines define maximum permissible aid intensities depending on the size of the airport.

Maximum level of investment aid - A maximum intervention rate of 75% investment aid (CAPEX) for airports with less than one million passengers will apply from 2015. This will most likely put some regional airports under greater pressure to fund the balance of at least 25%. Under the 2011 – 2014 Regional Airport Programme CAPEX Scheme, the State provided 90% of funding for essential safety and security related investment projects at airports to ensure compliance with the associated regulations.

The 2014 Guidelines provide that regional airports located in peripheral regions of the Union, with average traffic below 1 million passengers per annum, such as Ireland‟s four regional airports, should contribute at least 25% to the financing of the total eligible investment costs. However, the Guidelines also recognise that such airports may face a funding gap which is higher than the maximum permissible aid intensities. Subject to a case-by-case assessment and depending on the particular characteristics of each airport, the investment project and the region served, intensity exceeding 75 % may be justified in exceptional circumstances for such airports. If so, specific authorisation from the EU Commission for increased funding will be sought by Ireland.

Under the 2014 Guidelines, the amount of the aid should not exceed the funding gap of the investment project (so-called „capital cost funding gap‟), which is determined on the basis of an ex ante business plan as the net present value of the difference between the positive and negative cash flows (including investment costs) over the lifetime of the investment. The residual value of the asset(s), along with the projected earnings to the airport as a result of the investment, will also need to be determined and factored into the level of the „capital cost funding gap‟.

Uncovered operating costs - In terms of compensation for uncovered operating costs (OPEX), the 2014 Guidelines provide that such aid will be considered as contributing to the achievement of an „objective of common interest‟, thereby compatible with the internal market pursuant to Article 107(3)(c) of the Treaty on the Functioning of the European Union, provided that such aid –

(a) increases the mobility of Union citizens and the connectivity of the regions by establishing access points for intra- Union flights; or

(b) combats air traffic congestion at major Union hub airports; or (c) facilitates regional development.

Operating costs funding gap - In order to provide proper incentives for efficient management of the airport, the 2014 Guidelines also provide that the aid amount is, in principle, to be established ex ante as a fixed sum covering the expected funding gap of the operating costs (determined on the basis of an ex ante business plan) during a maximum transitional period of 10 years.

That „operating funding gap‟ is now defined in the 2014 Guidelines as the operating losses of the airport over the relevant period, discounted to their current value using the cost of capital, that is to say the shortfall (in Net Present Value terms) between airport revenues and operating costs of the airport. Additional clarification received by the Department from the Commission (DGCOMP) clearly states that such costs-v-revenues should be identified on the basis of EBITDA5. The 2014 Guidelines also provide that the initial operating funding gap is the average of the operating funding gaps (i.e. the amount of operating costs which is not covered by revenues) during the five years (2009 to 2013) that precede the beginning of the transitional period.

Member States are required, when calculating the operating costs funding gap, to distinguish between the airport‟s costs associated with economic activities and those associated with non-economic activities over that 5-year period. Only those costs relating to economic activities will be eligible for OPEX supports and will form the basis of calculations to identify the „operating funding gap‟. Costs associated with non-economic activities will be dealt with outside of State aid rules and under „Public Policy Remit‟ (see page 13).

While the maximum permissible aid amount during the whole transitional period will be limited to 50% of the initial funding gap for a period of 10 years, the 2014 Guidelines also provide that under the current market conditions, airports with annual passenger traffic of up to 700,000 may face increased difficulties in achieving the full cost coverage during the 10-year transitional period. For this reason, the maximum permissible aid amount for airports with up to 700,000 passengers per annum will be 80% of the initial operating funding gap for a period of 5 years after the beginning of the transitional period.

Where the 80% maximum is applied, the Commission will reassess the need, on a case by case basis, for continued specific treatment beyond that 5-year period and the future

5 Earnings Before Interest Taxes Depreciation and Amortization

prospects for full operating cost coverage for this category of airport, in particular with regard to the change of market conditions and profitability prospects. The Department will also carry out a Value-for-Money Review on the 2015-2019 Programme, which will reflect the outcomes of any such Commission reassessment.

THE ALTMARK JUDGMENT

In finalising the 2014 Guidelines, the EU Commission has again drawn attention to the Court judgment in the Altmark case, which established case law in respect of State aid. The Court ruled that compensation for public service activities does not constitute State aid within the meaning of Article 107 of the EC Treaty provided that the following four criteria are met:

(1) the recipient undertaking must actually have public service obligations to discharge and the obligations must be clearly defined;

(2) the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner;

(3) the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations; and

(4) where the undertaking which is to discharge public service obligations, in a specific case, is not chosen pursuant to a public procurement procedure which would allow for the selection of the tenderer capable of providing those services at the least cost to the community, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of transport so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant revenues and a reasonable profit for discharging the obligations.

The Commission has stated that when it complies with the conditions established by the Altmark judgment, compensation for public service obligations imposed on an airport operator does not constitute State aid.

FINANCING OF AIRPORTS - CATEGORISATION OF AIRPORT ACTIVITIES UNDER THE 2014 GUIDELINES & PUBLIC POLICY REMIT

The Commission's 1994 Aviation Guidelines set out the view that the construction or enlargement of infrastructure projects (such as airports, motorways, bridges, etc.) represents a general measure of economic policy which cannot be controlled by the Commission under the Treaty rules on State aids. However, the 2014 Guidelines make it clear that the activity of airlines, which consists in providing transport services to passengers and/or undertakings, constitutes an economic activity.

The 2014 Guidelines position is supported by the judgment in the "Aéroports de Paris” case6 in which the European Court of Justice ruled in favour of this latter view and held that the operation of an airport, consisting in the provision of airport services to airlines and to the various service providers, also constitutes an economic activity. In its judgment in the "Leipzig-Halle airport" case7, the General Court clarified that the operation of an airport is an economic activity, of which the construction of airport infrastructure is an inseparable part.

Therefore, the airport activities that are covered by this Programme can be categorised as follows:

(i) construction of airport infrastructure and equipment or facilities that directly support them that are safety and/or security related (ii) operation of the infrastructure, comprising the maintenance and management of airport infrastructure

In addition to the activities listed at (i) and (ii) above, the 2014 EU Guidelines also provide for the distinction to be made in respect of airport activities that have an associated economic activity and those that don‟t. The latter normally fall under the responsibility of the State in exercising its official powers, come within the area of “Public Policy Remit” and, as they are not of an economic nature, do not fall within the scope of State aid Rules.

6 Case T-128/98 Aéroports de Paris v Commission, [2000] ECR II-3929, confirmed by Case C-82/01, [2002] ECR I-9297, paragraphs 75-79. 7 Joined Cases T-443/08 and T-455/08 Mitteldeutsche Flughafen AG and Flughafen Leipzig Halle GmbH v Commission, ("Leipzig-Halle airport" judgment), [2011] ECR II-1311, in particular paragraphs 93 and 94; confirmed by Case C-288/11 P Mitteldeutsche Flughafen and Flughafen Leipzig-Halle v Commission, [2012] not yet reported.

Public Policy Remit – in reflecting the judgments in the above two cases, the 2014 Guidelines also provide clarification regarding the funding of certain non-economic activities at an airport that normally fall within a „Public Policy Remit‟. Activities such as air traffic control, police, customs, firefighting, those necessary to safeguard civil aviation against acts of unlawful interference and the investments relating to the infrastructure and equipment necessary to perform those activities are considered in general to be of a non-economic nature. Therefore, under this Regional Airports Programme, public funding of such investments will fall within Ireland‟s „Public Policy Remit‟ for regional airports and will not constitute State aid.

Subject to the availability of resources, the Exchequer will provide compensation8 to the airports at 90% of the total cost of such eligible capital investments (PPR - C). Furthermore, airports will be compensated (at 100%) for operational costs relating to such non-economic activities (PPR - O). This will require regional airports to maintain separate cost accounting for core airport activities. Payments under the OPEX Scheme will only be made in respect of those core airport operations with associated economic activity.

IWAK9 STUDY

In an Irish context, the outcomes of the IWAK Study, our largest regional airport, published in December 2013, also provide a basis for the planning of future supports for regional airports. The options and opportunities for the growth and development of the Airport were the subject of a Study Group established following a meeting of the Taoiseach, the Minister and Minister of State for Transport, Tourism and Sport and local Deputies with the IWAK Board on 28 January 2013 and chaired by Deputy John O‟Mahony.

The Minister for Transport, Tourism & Sport presented the IWAK Study Group Report to Government on 16 December 2013, with the Study recommendations and the impact of those outcomes on future State supports for regional airports, being noted at that time by Government.

In summary, the recommendations of the Study Group are that -

8 Separate Contracts, under this Programme, between the airports and the Department will provide for supports under Public Policy Remit 9 Ireland West Airport Knock

 It is reasonable to expect that, in line with draft EU Guidelines, regional airports should be financially viable within at most a 10 year period.  However, a policy position which would see Exchequer support terminate at the end of 2014, would leave a situation whereby IWAK, and likely all regional airports, would face closure within a short timeframe.  Given the contribution that key regional airports make to their regional and local economy, as illustrated in the case of IWAK, they should be given an opportunity beyond 2014 to grow to a viable position.  In facilitating their future development, regional airports should have local authority, local business and Exchequer support.  In the case of IWAK, the route to growth lies in developing tourism numbers. Local interests, with the support of national agencies, should draw up and implement a plan to develop this market.  In the case of Exchequer support, a framework should be developed by the Department for approval by the EU Commission for implementation at the end of the current programme (i.e. from 2015).  That framework should provide a level of certainty around support over a multiannual period, where regional airports can provide a business plan leading to stand alone commercial viability within a ten year period.  The framework should include requirements in relation to – o Local authority, business and Exchequer involvement, o Catchment areas served, o Size of airports and level of public support, o Route to viability, o In the case of Exchequer capital support, conditions relating to safety and security.  In the case of IWAK, it is also recognised that in relation to the present debt level a separate parallel solution, not involving Exchequer support, must be identified.

These recommendations have been taken into consideration in compiling both Ireland‟s National Aviation Policy and this Regional Airports Programme.

IRELAND‟S NATIONAL AVIATION POLICY

Ireland‟s National Aviation Policy will be adopted in 2015. That Policy proposes that regional airports be given the opportunity beyond 2014 to grow to a viable, self- sustaining position, particularly considering the contribution that they make to their

regional and local economy. As a result, the Policy provides that Exchequer support (OPEX and CAPEX) for the regional airports will be continued, where appropriate, beyond 2014. This decision will facilitate the airports in developing and implementing new business plans leading to self-sufficiency within a ten year period. Central to these will be the need for regional and local business investment.

There are many demands on the funding available to the Department and maintaining an attractive Regional Airports Programme will be challenging post 2014, particularly when competing with public transport provision and road maintenance financial requirements.

The Policy recognises the impact that the 2014 Guidelines on State aid to airports and airlines will have in delivering future State supports to the regional airports and that careful consideration will be given to how such supports are best distributed between the three Schemes (CAPEX, OPEX and PSO).

Finally, with a particular focus being placed on maintaining and working towards improving essential international connectivity services, it will be essential that the regional airports work together and create synergy in operational activity and promote the overall role of regional airports as access points for both tourism (e.g. the Wild Atlantic Way) and business benefits.

In summary, Ireland‟s National Aviation Policy contains a number of specific policy proposals in respect of regional airports, including –  Ireland will implement an EU approved Framework (Regional Airports Programme 2015 - 2019) of supports for regional airports.  Exchequer support for operational expenditure at regional airports will be phased out over a maximum period of 10 years, in accordance with EU Guidelines.  Exchequer support for capital expenditure will be limited to safety and security related expenditure.  Clear business plans will be required from the airports seeking supports. In considering funding to regional airports, the Department will take account of the level of regional involvement, including investment by local authorities and/or business.  PSO contracts, following tender competitions, for Kerry/Dublin and/or Donegal/Dublin air services will run for two years initially and, subject to a satisfactory review after 18 months, may be extended by a maximum of one year.

THE 2014 EU GUIDELINES AND IRELAND‟S NATIONAL FRAMEWORK

In the absence of some form of State support after 2014, it is likely that all of the current four regional airports would be forced to close over time. A funding model comprising of a combination of financial supports from the Exchequer, Local Authorities and local business interests would be more difficult to realise should Exchequer support be withdrawn. This position was made clear by the IWAK Study and noted by Government on 16 December 2013.

Therefore and in accordance with the 2014 EU Guidelines, a National Scheme or Framework has been designed (i.e. this Programme) for approval by the EU Commission, reflecting the main principles underlying Ireland‟s policy on funding supports for the regional airports over the lifetime of the Programme. It has been decided to continue supports to the regional airports, where appropriate, under the two Schemes – Core Airport Management Operational Expenditure Subvention (OPEX) and Capital Expenditure Grant (CAPEX) and to airlines under the Public Service Obligation (PSO) Air Services Scheme.

Having decided to continue providing State support for the four regional airports, the 2014 EU Guidelines clarify the circumstances under which the Department of Transport, Tourism & Sport or other State Agencies would be allowed to provide such direct financial assistance.

In determining which airports will continue to receive OPEX supports under this Programme, the „initial operating funding gap‟ for each airport will be identified on the basis of operating costs relating to economic activities not covered by revenues (using EBITDA criteria) for the years 2009 to 2013, in respect of each airport. Non-core activities not directly linked to the airport‟s core activities, such as the provision or operation of shops, restaurants or car parks, will not be regarded as eligible for State subvention. However, subsidisation of core airport operations from such commercial activities would be encouraged to promote the airport‟s financial sustainability.

More specifically, future State support will be rebalanced towards capital expenditure, concentrated on safety and security related infrastructure projects. The level of future PSO supports on the other hand, including the number and frequency of subvented routes, will be very much dependent on the cost/benefit of such a Scheme and in particular, the outcome of the review of the contract(s) after the first 18 months of operation.

It should be noted, however, that while the 2014 Guidelines provide a period of 10 years for regional airports to achieve a position of self-sufficiency in terms of operating costs, that period is a maximum and should not be interpreted as a period of continued State support.

CONDITIONS TO BE MET BY REGIONAL AIRPORTS TO QUALIFY FOR FUNDING UNDER PART 2 OR 3

Following the publication of the 2014 EU Guidelines on State aid to airports and airlines, the character of future State supports to regional airports in Ireland has changed. A greater onus will be placed on airports to demonstrate the economic benefits of such support to the region, with a particular emphasis on demonstrating the airport‟s path to viability. The 2014 EU Guidelines are quite specific in reflecting the view of the Commission in that regard. With respect to capital infrastructure investment projects, for example, the Guidelines provide that any investment which does not have satisfactory medium-term prospects for use, or diminishes the medium-term prospects for use of existing infrastructure in the catchment area, cannot be considered to serve an objective of common interest.

Therefore, to qualify for State support post 2014, regional airports will have to provide the following –  a study showing the economic value of the airport to the region, including details of the catchment area served,  a five-year business plan demonstrating the airport‟s path towards commercial viability over the course of the plan and the details and level of support to be provided by Local Authorities and local business interests,  the safety and security related infrastructural projects, if any, planned for implementation by the airport during the period of the business plan, distinguishing between those with associated economic activity from those without such activity,  a statement of the local funding available towards the overall costs of the planned infrastructural project(s).

The Department of Transport, Tourism & Sport will, if so required, fund up to 33% of the total costs of the economic study on the understanding that the balance of the total costs is funded locally (Airport, Local Authority etc).

It should be noted by airports that, in accordance with the 2014 EU Guidelines, works on an individual investment projects can only commence after an application has been submitted to the Department for such projects and approval granted accordingly.

In addition to the above and as a requirement of continued State support during the life of this Programme, regional airports in receipt of such supports must demonstrate annually evidence of progress towards viability. Where such progress cannot be demonstrated over a consecutive 3-year period, State supports may be suspended pending a detailed examination of the future prospects of the airport.

PART 2

CORE AIRPORT MANAGEMENT OPERATIONS/ACTIVITIES (OPEX)

In order for State supports under the OPEX Scheme to be compatible with the internal market pursuant to Article 107(3)(c) of the Treaty, the cumulative conditions set out in section 5.1.2 of the 2014 EU Guidelines must be met, namely –

(a) Contribution to a well-defined objective of common interest (b) Need for State intervention (c) Appropriateness of State aid (d) Existence of incentive effect (e) Proportionality (f) Avoidance of undue negative effects on completion and trade

Ireland will operate the 2015 – 2019 Regional Airports Programme OPEX Scheme in strict compliance with the above conditions.

Eligible Activities for Exchequer Subvention – The eligible Core Airport Management Expenditure activities under the OPEX Scheme include the following management and general overheads associated with the operation of the airports -

Wages and Salaries, Pension costs, Rent, Rates, Insurance, Light & Heat, Repairs and Maintenance, Training, Flight Checking Services, Baggage handling, Ground handling, Passenger flows within terminal buildings, Cleaning & Refuse and Bank Charges.

While the majority of these activities are in respect of economic activities at Ireland‟s regional airports, some will relate to costs associated with non-economic activities (under Public Policy Remit) such as security, fire fighting and ATC services etc.

Under Ireland‟s 2015 – 2019 Regional Airports Programme OPEX Scheme, airports will be required to maintain separate cost accounting distinguishing between economic and non-economic activities. The tables provided at Appendix 1 to this Programme in respect of the OPEX Scheme provide for such a distinction. The Department will closely monitor the airports‟ accounts to ensure that public funding for non-economic activities is not used to compensate airports for any possible shortfalls under the OPEX Scheme.

Non-eligible Activities for Exchequer Subvention – In addition to operational costs associated with non-economic activities (Public Policy Remit) and in line with the 2014 EU Guidelines, expenditure on commercial activities not directly linked to the airport‟s core activities, including the construction, financing, use and renting of land and buildings for offices, ground handling, storage, hotels, industrial enterprises, shops, restaurants and car parks will not be regarded as eligible expenditure for the purpose of assessing the level of subvention under the OPEX Scheme.

However, airport operators will be encouraged to generate revenues from such activities to enhance commercial performance and profits of the regional airport concerned and thereby minimise and, if possible, remove the requirement for subvention.

Ex-Ante Aid Amounts – As detailed in PART 1 of this Programme, the maximum permissible aid amount will be based on the average of the airport‟s operating funding gap during the five years 2009 to 2013. Where the 80% maximum is applied under paragraph 130 of the 2014 EU Guidelines, the maximum amount of operating aid in respect to economic activities that will be available to the airport will be established as an ex-ante fixed sum over 5 years (i.e. the total maximum aid available for the period 2015 to 2019 inclusive). The amount of aid to be paid to qualifying airports in respect of any particular year (during the period 2015 to 2019) will be set out in a contract between the Department and the airport and will be subject to the overall amount of voted Exchequer funds available to the Minister in respect of that year being sufficient to pay the amount due to all airport operators who have contracts under the Scheme. Where sufficient funds are not available to pay the full amount otherwise due to all airport operators under such contracts, the total amount paid to each airport operator shall be determined by allocating the total Exchequer funds available on a pro rata basis to each airport operator.

Any overpayments arising from the submitted projected operating costs and the airport‟s subsequent annual audited financial statement for that year will be offset against the following year‟s submission. Any over-payment in 2019 must be returned to the Department as soon as practicable following the completion of the airport‟s annual audited financial statements for that year.

Administration of the scheme - The following stages will apply to the implementation of the scheme on a year by year basis:

1. Invitation to each airport to submit proposals for the year in question, together with relevant financial projections 2. Subvention application

3. Appraisal of proposals received from each airport 4. Payment process 5. Monitoring (ex-post monitoring and evaluation of effectiveness of scheme by reference to identified performance indicators)

Submission of Proposals for subvention - The airports will be invited on an annual basis to submit an estimate of the amount of subvention, relating to economic activities only, that may be required for the year in question, having regard to the expected shortfall between (1) proposed expenditure on eligible activities and (2) revenue from eligible activities and any contribution earned from non-core activities (using EBITDA). Irrespective of the estimated amount submitted by qualifying airports, the supports available under the 2015 – 2019 Regional Airports Programme OPEX Scheme may not exceed the maximum annual allocation established following the calculation of the „operational costs funding gap‟ under paragraph 130 of the 2014 EU Guidelines.

Specifically, each applicant will be required to submit -

 a table providing an analysis of projected performance for the year in question, together with a further table giving a breakdown of projected administrative expenses, and  a table providing an analysis of financial performance based on the most recent audited financial statements for the previous year, together with a further table giving a breakdown of the administrative expenses for that same period.

The Chairman of the Board must sign these tables, which involve separate reporting of core airport management operations/activities and any non-core activities. The tables are set out in Appendix 1 and guidance notes on their completion are given in Appendix 2.

In association with the tables set out at Appendix 1, the process will entail the submission of the following financial and business strategy information:

 General Information on the airport, to include the Airport‟s Business Plan and most recent audited accounts and financial statements.  Commentary on its core airport activities as stipulated in the contract and the efficiency with which those activities are being delivered in terms of quality and cost.  Strategy on airport charges and commercial revenue to maximise its potential as a financially sustainable airport.

 Information on projected passenger numbers and the range of existing and new air services.  Contribution the airport makes to local / regional economy, including evidence of importance of role that the airport plays in terms of the level of international connectivity that it brings to the region for tourism and business.  Relationship and foreseen impact on operational expenditure of capital expenditure programme.  Declaration from the regional airport, including - o an undertaking that public funds would not be used for any other purpose, including the use of PPR funding supports o a statement of compliance with the 2014 EU Guidelines o a copy of statement from an independent auditor in respect of the mechanisms utilised in distinguishing between the economic and non- economic activities regarding operating costs (i.e. OPEX related v PPR related).

The Department reserves the right to seek additional information as may be required, such as more detailed financial projections for the year in which subvention is sought and for subsequent years.

Appraisal of Subvention Proposals - An Appraisal Panel will be formed comprising relevant officials from the Department‟s Airports Division and the Department‟s Financial Advisor. Additional technical advice will be sought, as necessary, from the Irish Aviation Authority (IAA) and the Aviation Services Division (ASD) of the Department of Transport, Tourism & Sport.

Specific subvention allocations will be appraised in terms of:

 Assessment of the financial case made by the Airport Company, including a review of the Company‟s Business Plan, maximisation of non-core airport revenues and assessment of financial risk to the company in event of reduction or deferral of subvention.

 Insofar as practical, particularly in the light of the relatively small scale of the regional airport operations, analysis of the costs – based on a typical airport of its size and location that is well run and adequately equipped with infrastructure and necessary equipment/facilities to meet necessary operational obligations - taking into account the relevant revenues and reasonable profit for discharging such obligations.

 Prevention and, as may be appropriate, correction of any over-payment or under- payment of the airport subvention that may emerge through examination of the audited financial statements

 Projected outcome, by reference to key performance indicators identified in the contract with the regional airport, e.g.

. implementation of the IAA and the ASD recommendations . passenger throughput, particularly inbound tourists

A report on the outcome of the appraisal process, including any proposed subvention allocations will be submitted to the Minister for approval.

Airports will be formally notified of the subvention allocation (if any), subject to any conditions as may be imposed to promote efficiency, revenue generation and value for money to the State.

Claim and Payment Procedures - Payments under this scheme will be made in accordance with Government Financial Procedures and the relevant procedures and control systems operated by Airports Division for payment of subvention to regional airports.

Review and Monitoring - Airports Division will also monitor the performance of each airport and the effectiveness of the operational grant scheme as a whole on an ex-post basis by means of the following:

 Review of actual outcome of scheme – i.e. performance indicators results (e.g. fulfilment of licensing obligations, passenger throughput,) in respect of each airport.

 Consultation with IAA and ASD regarding the satisfactory performance, or otherwise, of mandatory safety and security requirements.

 Review the annual audited financial statements, in consultation with the Department‟s Financial Advisor.

Qualifying airports will be expected to demonstrate a path towards future viability as required under the 2014 EU Guidelines.

PART 3

CAPITAL EXPENDITURE GRANT (CAPEX) SCHEME

Previously, Exchequer support for capital investment projects at regional airports was directed through the National Development Plan (NDP) 2000 - 2006 programme and the Transport 21 Investment Framework. Under these, carefully targeted investments in some regional airports received grant assistance, where demand for additional air services were satisfactorily demonstrated and where an economic case was made to support and justify increased investment. Priority was given to projects deemed necessary by the Irish Aviation Authority (IAA) for compliance with safety standards set down in ICAO Annex 14.

The Exchequer provided (under the Regional Airports Programme 2011 – 2014) 90% of funding (CAPEX) for essential safety and security investment projects at airports to ensure compliance with safety and security regulations. Other infrastructure projects had to be funded from own resources/local investment.

Under the 2015 – 2019 Regional Airports Programme CAPEX Scheme, funding will again be restricted to safety and security related projects, but with an associated economic activity only. Safety and Security related investment projects with no associated economic activity will be dealt with outside of the EU Rules on State aid and under Ireland‟s „Public Policy Remit‟ (see page 13)

In order for State supports under the CAPEX Scheme to be compatible with the internal market pursuant to Article 107(3)(c) of the Treaty, the cumulative conditions set out in section 5.1.1 of the 2014 Guidelines must be met, namely –

Ireland will operate the 2015 – 2019 Regional Airports Programme CAPEX Scheme in strict compliance with the above conditions.

In recognition of the distinction being made under this Programme, the Irish Aviation Authority (IAA) and/or the Aviation Security Division (ASD) of the Department of Transport, Tourism & Sport, will be consulted to determine what investment projects fall within the category of added economic value to the airport and those that do not.

In providing State supports (Exchequer and Local Authority) to regional airports for capital projects, the 2014 EU Guidelines on State Aid to airports and airlines require that airports with average traffic below 1 million passengers per annum should, normally, contribute at least 25% to the financing of the total eligible investment costs.

State supports, therefore, will be limited to 75% of the total eligible costs of safety and security related projects coming under the CAPEX Scheme, unless Commission approval has been granted following the submission of a business case by the airport in accordance with paragraphs 99 to 103 of the 2014 Guidelines (see page 10 of this Programme). Such business cases must be submitted for the consideration of the Department of Transport, Tourism and Sport in the first instance and where appropriate, forwarded thereafter to the Commission for approval to exceed the 75% maximum aid intensity level.

When preparing submissions, the „template‟ provided at Appendix 3 provides guidance to airports for calculating the capital cost funding gap. In addition, submissions should, at a minimum, contain the information listed in the table at page 30 of this Programme. Where such a case is being submitted for approval, it is important for airports to note that the level of aid intensity, while exceeding the 75% maximum provided in the EU Guidelines, may not exceed the actual capital costs funding gap of the investment project. Furthermore, works on an individual investment projects can only commence following approval from the Department.

Eligible airports – subject to meeting the required criteria under the 2014 EU Guidelines, the possible beneficiaries of the financial assistance under this Programme‟s CAPEX Scheme are the four regional airport companies:-

 Connaught Airport Development Company Ltd. (Ireland West Airport Knock, Co. Mayo)  Aerphort Idirnáisiúnta Dhún na nGall Teo. (Carrickfin, Co. Donegal)  Kerry Airport plc (Farranfore, Co. Kerry)  South East Regional Airport Waterford (Killowen, Co. Waterford)

Submission of proposals by airports - The Department will formally invite proposals from each of the four regional airport based on a 5-year planning framework. Where a proposal is successful, the approved project(s) would be eligible under this Regional Airports Programme for grant assistance (CAPEX) for the period 2015-2019.

Airports will be required to provide the following information in respect of each proposal:  Business Plan covering the period of the proposed investment, from planning to completion of the project(s)  An Economic Evaluation of airport‟s contribution to the region  Statement identifying the airport‟s path to viability with clear measurable targets for delivery  Recent audited accounts and financial statements  Statement on access to and availability of additional sources of funding  Airport charges strategy  Corporate structures in place for project management and cost control  Specific information in respect of proposed projects, including - 1. Description of project, including timelines 2. Estimated cost 3. Amount being provided from local funding sources 4. Safety or security case supporting project 5. Recommendation of the IAA/ASD, as appropriate 6. Consideration of alternative approaches to compliance with IAA/ASD recommendations

Project (CAPEX) appraisal and selection by the Department of Transport, Tourism & Sport -

(i) Preliminary Screening - This aims to assess if the project(s) has sufficient merit to justify a full detailed appraisal. This would take the form of a screening process to ensure that proposed projects, as set out in the airport‟s business plan, are broadly consistent with the objectives of the Scheme and that sufficient information has been provided to allow for detailed appraisal. Urgent safety & security projects necessary to comply with national/international regulations could be approved at this stage, depending on the nature and scale of projects, without reference to the capital appraisal process set out below.

(ii) Capital Appraisal - The type and depth of an appraisal is dependent on the size and nature of the proposed project and will be proportionate to its anticipated scale. The

resources to be spent on appraisal will be commensurate with the nature and estimated cost of the project and the degree of complexity of the issues involved. Accordingly:

 a simple assessment may be carried out for minor safety and security related projects with an estimated cost below €0.5 million, such as projects involving minor refurbishment works and upgrading of existing facilities;  safety and security projects costing between €0.5 million and €5 million will be subject to a single appraisal incorporating elements of a preliminary and detailed appraisal; and  an in-depth appraisal may be carried out for safety and security projects costing in excess of €5 million.

Such an appraisal will be carried out in line with Department of Public Expenditure and Reform‟s Public Spending Code10.

Expert Advice - Expert advice (financial/aviation/engineering etc) will be sought where necessary to assist in the appraisal process.

Monitoring and reporting - The regional airports are responsible for implementing the approved projects. Works on individual projects can only commence following approval by the Department. If works start before such approval is granted, any aid awarded in respect of that individual project will be considered incompatible with the internal market and will be dealt with accordingly. Cost overruns would be met by the airport company concerned. For monitoring and reporting purposes, the regional airports should establish suitable project management structures. Each regional airport in receipt of funding will be required to provide a quarterly report to the Department on procurement, project implementation, and expenditure profiling, specifically highlighting any existing or anticipated problems. The Department reserves the right to inspect projects „on-site‟ at any stage of implementation.

Funding arrangements - Detailed guidance on the claim and payment processes will be made available to the Airport at contract stage (i.e. a contract will be entered into between the Department and the Airport setting out the terms and conditions applying under the CAPEX Scheme). However, continued State supports to the airport will conditional on the airport satisfactorily demonstrating progress towards viability and access to/availability of additional sources of funding.

10 Public Spending Code” means the public spending code: expenditure planning, appraisal & evaluation in the Irish public service – (www.publicspendingcode.per.gov.ie)

Freedom of Information - All information submitted by airports in receipt of funding will be subject to the Freedom of Information Act 2014.

Table: Business Case in accordance with paragraphs 99 and 103 of the 2014 EU Guidelines on State aid to airports and airlines should include -

Description of Airport  Location – other transport modes  Ownership  Economic Value to Region  Catchment area – population etc  Past performance – pax. nos./ financial  Routes serviced and frequencies  Nearest airport – travel times etc Project Description  Details  Duration of planned works  Costs – cost/benefit analysis  Funding Gap Calculations  Funding Sources – private sector etc  Tendering of suppliers  Statement re meeting medium term prospects for use Counterfactual Information  If no State aid received  If limited State aid (e.g. 75%) received Future Plans  5 year Business Plan  Other development plans  New routes/new carriers  Increased pax. nos. per annum  Path towards future viability  Projected financials  Growth Studies conducted? „Clearly Defined Objective of general  Statement demonstrating: Interest‟ - accessibility of the region - stimulate regional development - creation of new jobs - impact on tourism - planned infrastructure development (non airport) e.g. roads/rail Case to exceed 75% maximum aid  „Funding Gap‟ v 75% intensity  Why can‟t 25% own funding/local supports be met  Contingency plans if above maximum aid intensity not approved Paragraph 93 EU Guidelines  Statement of compliance with terms acknowledgement of paragraph

PART 4

PUBLIC SERVICE OBLIGATION (PSO) AIR SERVICES SCHEME

The Communication from the Commission, 2012/C 8/03 (European Union framework for State aid in the form of public service compensation) provides that State aid falling outside of the scope of Decision 2012/21/EU (which only refers to air links with islands) may be declared compatible with Article 106(2) of the Treaty if it is necessary for the operation of the SGEI (Services of General Economic Interest) concerned and does not affect the development of trade to such an extent as to be contrary to the interest of the Union.

It is widely accepted that a commercial operator would not provide services on either the Donegal/Dublin or Kerry/Dublin routes in the absence of a subvention by the State. The entrustment of the operation of an SGEI (i.e. the operation of air services on those two routes) by Ireland is also in line with the Commission Communication on State Aid Modernisation Com (2012) 209 final, which points out that State aid policy should focus on facilitating well-designed aid targeted at market failures and objectives of common interest to the Union.

Commission Communication 2012/C 8/03 also provides that responsibility for the operation of the SGEI must be entrusted to the undertaking concerned by way of one or more acts, the form of which may be determined by each member State. The act must include –  The content and duration of the public service obligations,  The undertaking and, where applicable, the territory concerned,  The nature of any exclusive or special rights assigned to the undertaking by the granting authority,  The description of the compensation mechanism and the parameters for calculating, monitoring and reviewing the compensation, and  The arrangements for avoiding and recovering any overcompensation.

The contract entered into between the Department and the operator(s) form the basis for the act of „entrustment‟, in accordance with the above Commission Communication. Such obligations or „Services‟ may be defined by Member States to be of General Economic Interest (SGEI), thereby allowing the imposition of a PSO on services to airports in such peripheral or development regions, where the route is considered –

“vital for the economic development of the region … to the extent necessary to ensure… the adequate provision of scheduled air services satisfying fixed standards of continuity, regularity, capacity and pricing, which ... carriers would not assume if they were only considering their commercial interest.”

EU Council Regulation (EEC) No. 1008/2008 The Communication also provides that where the responsible authority, when entrusting the provision of the service to the undertaking in question, has complied with Union rules in the area of public procurement, State aid in respect of the public service obligation will be considered compatible with the internal market on the basis of Article 106(2). In awarding the current PSO air services contract for the Donegal/Dublin and Kerry/Dublin routes, Ireland met with the requirements of Articles 16 and 17 of EU Council Regulation (EEC) No. 1008/2008 of 24th September 2008 and its obligations under Union rules in the area of public procurement.

Under those Regulations, the Government established a Public Service Obligation (PSO) Air Services Scheme in respect of two routes in Ireland. Such Schemes provides financial support to airlines, based on a competitive tender, to operate essential services serving peripheral or development regions, considered vital for the economic development of those regions and which would not otherwise be provided on a commercial basis.

The contracts for the previous PSO air services Scheme – which provided financial support to Loganair (Donegal/Dublin route) and Stobart Air (Kerry/Dublin route) were extended from 3rd November 2014 (when the contracts were due to expire) to end January 2015 to undertake a new public procurement competition. Such PSO services are based on a competitive tender to operate essential services in response to a need to ensure adequate connectivity in areas not otherwise served by adequate transport services.

While the 2014 EU Guidelines on State aid to airports and airlines have application to other Union Guidelines on State aid, the current PSO air services Scheme and any future air services Schemes must comply in particular with Regulation (EC) No. 1008/2008. Those Regulations require that a notice of invitation to tender must be published in the Official Journal of the European Union, with a deadline of 2 months for submission of tenders from the date of publication of the notice.

A new PSO air services competition (public tender process) was run in late 2014 for the Donegal/Dublin and Kerry/Dublin routes post 2014. The successful bidder (Stobart), will service both PSO routes and operate the contract from 1 February 2015 to 31 January 2016. While the contract duration will initially be for that 2-year period, the outcome of

the review process to be conducted after 18 months from the commencement of the contract may lead to an extension not exceeding 1 year. The implications of this change in policy will mean that the new contract may expire on 1 February 2016 or the same date in 2017. In either event, a decision will be required on whether or not to continue providing supports under the Scheme and if continued, to one or both routes. A detailed evaluation of the services will be carried out at that time. Wider policies on Aviation and Integrated Transport as well as Government Policy on Spatial Planning and Tourism will also have to be considered.

At Appendix 4 the framework for the granting of any further public service obligations to airlines is set out. The framework reflects the contents of the Commission Communication 2012/C 8/03 on the application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest.

PART 5

TRANSPARENCY & MONITORING

Section 8 of the 2014 EU Guidelines provides that, in the interest of improving the transparency of State aid in the Union, steps should be taken to ensure that the Member States, economic operators, the interested public and the Commission have easy access to the full text of all applicable aid schemes in the aviation sector and to pertinent information about individual aid measures.

This position arises from the Commission Communication published per OJ C198/30 on 27 June 2014, whereby each Member State is required to have a comprehensive State aid website in place by 1 July 2016. In the interim, as Ireland prepares to meet that obligation, the full text of Ireland‟s Regional Airports Programme 2015 – 2019, along with detailed information relating to each of the three Schemes (PSO, OPEX and CAPEX) under that Programme, will be made available on the Department‟s Website in accordance with the criteria set out in Section 8 of the 2014 Guidelines.

In compliance with the 2014 EU Guidelines, such information will be kept for a period of at least 10 years, will be updated every 6 months and will be available to the interested public without restrictions.

Furthermore, in order to allow the Commission to monitor the progress of the phasing out of operating aid to airports and its impact on competition, Ireland is required, under the 2014 EU Guidelines, to submit an annual report to the Commission on such progress by the airports.

These reporting, transparency and monitoring requirements will also be reflected in the contracts between the Department and the airports under the 2015 – 2019 Regional Airports Programme OPEX and CAPEX Schemes. PSO air services contracts post 1st February 2018 (as the current contract operates until 1 February 2016, with a possible extension for a further year following completion of a successful review of performance after the first 18 months) will also contain reference to these requirements.

PART 6

APPENDICES

Appendix 1: Core Airport Management Operational Expenditure Subvention Scheme Table 1.1 Analysis of Airport Operations extracted from most recent audited financial statements Year Ending [Insert Date] 1 2 3 (Economic) (Non-Economic) Totals per Original Budgeted Variation Between (YEAR) Core Airport Activities Core Airport Activities Non Core Airport Activities audited P&L Description *** (YEAR) Amounts Budget & Final (YEAR) Outturn Details Re Variations**** Sales Retail Sales 0 0 Airport Charges, Commissions and landing fees 0 0 Other Commercial Revenue 0 0 0 0 0 0

Cost of Sales Opening Stock 0 0 Purchases 0 0 0 0 Closing stock 0 0 0 0 0 0

Gross profit / (loss) 0 0 0 0

Administrative expenses excluding Depreciation (table 1.2) 0 0 0 0

Subtotal 0 0 0 0 EBITDA

Depreciation (table 1.2) 0 0 Capital expenditure grants released 0 0 0 0 0 0

Operating profit / (loss) 0 0 0 0

Interest receivable 0 0 0 0

Interest payable 0 0 0 0

Exceptional Items 0 0 0 0

Net Profit / (loss) before Subvention 0 0 0 0

Revenue grants received / receivable ** 0

Net Profit / (Loss)

Notes: Signature: ** operational expenditure subvention grants received. ** allocation of revenue or costs between core and non core activities - where judgement used, set out rationale for approach taken *** allocation of revenue or costs between core Chairman of Board **** Please provide information - cause etc - on material variations Date:

Appendix 1: Core Airport Management Operational Expenditure Subvention Scheme Table 1.2 Administrative Expenses breakdown for most recent set of audited accounts [insert date] 1 2 3

(Economic) (Non-Economic) Non Core Airport Original Budgeted Variation Between (YEAR) Administrative expenses* Core Airport Activities Core Airport Activities Activities Total Description ** (YEAR) Amounts Budget & Final (YEAR) Outturn Details Re Variations***

Wages & Salaries 0 0 0 0 Employer's PRSI contributions 0 0 0 0 Directors' pension costs 0 0 0 0 Staff pension costs 0 0 0 0 Directors' Salary 0 0 0 0 Computer Software & Costs 0 0 0 0 Foam 0 0 0 0 Fuel 0 0 0 0 Rent payable 0 0 0 0 Rates 0 0 0 0 Insurance 0 0 0 0 Advertising & marketing 0 0 0 0 Light & heat 0 0 0 0 Flight Checking Services 0 0 0 0 Repairs and maintenance 0 0 0 0 Training 0 0 0 0 printing, Stationery and Office exps 0 0 0 0 Telephone & Postage 0 0 0 0 Motor Expenses 0 0 0 0 Uniform & clothing 0 0 0 0 Travelling and Subsistence 0 0 0 0 legal, Professional & Consultancy 0 0 0 0 Accountancy 0 0 0 0 Audit 0 0 0 0 Cleaning & Refuse 0 0 0 0 Bank Charges 0 0 0 0 Sundry 0 0 0 0 licences & Subscriptions 0 0 0 0 Subtotal 0 0 0 0

Depreciation on buildings 0 0 0 0 Depreciation on fixtures & Equipment 0 0 0 0 Depreciation on motor vehicles 0 0 0 0 Subtotal 0 0 0 0

Total 0 0 0 0

Notes: *Non exhaustive list - Insert or delete line items as appropriate **Allocation of revenue or costs between core and non core activities - where judgement used, set out rationale for approach taken ***Please provide information - causes, etc - on material variations

Appendix 1: Core Airport Management Operational Expenditure Subvention Scheme Table 2.1 Analysis of Airport Operations for forthcoming 12 months financial period. Year Ending [Insert Date]

Non Core Projected movement between (Economic) (Non-Economic) Airport Total per Final (YEAR) final (YEAR) figures & projected Details re projected Core Airport Activities Core Airport Activities Activities audited P&L Description *** Figures (YEAR) movements**** Sales Retail Sales 0 0 Airport Charges, Commissions and landing fees 0 0 Other Commercial Revenue 0 0 0 0 0 0

Cost of Sales Opening Stock 0 0 Purchases 0 0 0 0 Closing stock 0 0 0 0 0 0

Gross profit / (loss) 0 0 0 0

Administrative expenses excluding Depreciation (table 1.4) 0 0 0 0

Subtotal 0 0 0 0

Depreciation (table 1.2) 0 0 Capital expenditure grants released 0 0 0 0 0 0

Operating profit / (loss) 0 0 0 0

Interest receivable 0 0 0 0

Interest payable 0 0 0 0

Exceptional Items 0 0 0 0

Net Profit / (loss) before Subvention 0 0 0 0

Operating subvention sought

Notes: *** Allocation of revenue or costs between core and non core activities - where judgement used, set out rationale for approach taken Signature: **** Please provide information - causes, etc - on material variations Chairman of Board Date

Appendix 1: Core Airport Management Operational Expenditure Subvention Scheme Table 2.2 Administrative Expenses breakdown for forthcoming year [insert date]

Core Airport Non Core Airport Projected movement between final Details re projected Administrative expenses* Activities Activities Total Description ** Final (YEAR) Figures (YEAR) figures & projected (YEAR) movements*** Wages & Salaries 0 0 0 Employer's PRSI contributions 0 0 0 Directors' pension costs 0 0 0 Staff pension costs 0 0 0 Directors' Salary 0 0 0 Computer Software & Costs 0 0 0 Foam 0 0 0 Fuel 0 0 0 Rent payable 0 0 0 Rates 0 0 0 Insurance 0 0 0 Advertising & marketing 0 0 0 Light & heat 0 0 0 Flight Checking Services 0 0 0 Repairs and maintenance 0 0 0 Training 0 0 0 printing, Stationery and Office exps 0 0 0 Telephone & Postage 0 0 0 Motor Expenses 0 0 0 Uniform & clothing 0 0 0 Travelling and Subsistence 0 0 0 legal, Professional & Consultancy 0 0 0 Accountancy 0 0 0 Audit 0 0 0 Cleaning & Refuse 0 0 0 Bank Charges 0 0 0 Sundry 0 0 0 licences & Subscriptions 0 0 0 Subtotal 0 0 0

Depreciation on buildings 0 0 0 Depreciation on fixtures & Equipment 0 0 0 Depreciation on motor vehicles 0 0 0 Subtotal 0 0 0

Total 0 0 0 Notes: *Non exhaustive list - Insert or delete line items as appropriate **Allocation of revenue or costs between core and non core activities - where judgement used, set out rationale for approach taken ***Please provide information - reasons, etc - on material projected movements 39

Appendix 2

Guidance Notes Regional Airports Core Airport management operational expenditure Subvention Scheme (OPEX)

1. These notes should be read in conjunction with PART 2 of the Programme and the tables for completion in Appendix 1. The key objective of these tables is to identify separately (a) core airport management operations/activities and (b) non-core activities. The tables also provide for making the distinction between economic and non-economic activities. All key underlying assumptions used in completing the tables should be identified, referring to the company‟s business plan or other information requested. Those information requirements will therefore support and augment, where necessary, the financial information and underlying assumptions accompanying the tables at Appendix 1.

2. The Tables at Appendix 1 should be prepared by the Airport Company and signed by the Company Chairman, where necessary drawing on the latest audited financial statements and the key assumptions set out by the board and management when compiling them.

3. If the two sets of activities are not accounted for separately in the audited financial statements, the Company is requested to analyse the financial information based on its best assessment of the allocation of revenues and costs between core airport management activities and non-core activities. Where there is no separate accounting of the two sets of activities in the audited financial statements, all key assumptions on revenue and cost allocation should be explained.

4. All key revenue and cost items should be identified and full commentary should be supplied on -  The average charge and projected charge per passenger  The average core airport cost per passenger and projected cost per passenger  The potential for increased core airport and non-core revenue generation and what steps the airport is taking to minimise and, if possible, eliminate subvention by the State  The efficiency of core airport operations by reference to key elements of its cost base.

5. Insofar as depreciation policies are concerned, these should be fully disclosed and explained.

Appendix 3

Guidance Notes Application of 2014 EU Guidelines on State aid to airports and airlines to CAPEX Scheme

Extracts of Relevant Provisions in the Guidelines

The maximum permissible amount of State aid is expressed as a percentage of eligible costs (the maximum aid intensity11) [para 97].

In order to be proportionate, investment aid to airports must be limited to the extra costs (net of revenues) which result from undertaking the aided project/activity rather than the alternative project/activity that the beneficiary would have undertaken in the counterfactual scenario, that is to say, if it had not received the aid. Where no specific counterfactual is known, in order to be proportionate, the amount of the aid should not exceed the funding gap of the investment project (so-called “capital cost funding gap12”), which is determined on the basis of an ex ante business plan as the net present value of the difference between the positive and negative cashflows (including investment costs) over the lifetime of the investment. For investment aid the business plan should cover the period of the economic utilisation of the asset [para 99].

The aid intensity must not exceed the maximum permissible13 aid intensity and should, in any case, not go beyond the actual funding gap of the investment project [para 100].

Calculating the Funding Gap of the Project (CAPEX only)

 Distinction must be made between investment projects with an associated economic activity (CAPEX) and those without any associated economic activity (Public Policy Remit)

 Forecast costs and revenues from Business Plan for scenario “with investment” for the reference period

 Calculate residual value of investment after the reference period

11 Aid intensity is defined as meaning the total aid amount expressed as a percentage of eligible costs, both figures expressed in net present value terms at the moment the aid is granted and before any deduction of tax or other charges.

12 Capital cost funding gap is defined as meaning the net present value of the difference between the positive and negative cash flows, including investment costs, over the lifetime of the investment in fixed capital assets.

13 The maximum aid intensity for an airport with less than 1 million passengers per annum is up to 75%

 Forecast costs and revenues for scenario “without investment” for the reference period (if counterfactual is known) and calculate project incremental operating revenue and costs (as a difference from “with” and “without” investment scenarios)

 Calculate discounted net cashflows (funding gap) of the project using appropriate discount rate

Illustrative Example in Calculating Project Funding Gap and Maximum Aid

Example Data Discounted Value* Non Discounted Value Total Investment Costs €150,000 (all eligible - spread over 3 years) Net Project Revenue €1,000 p.a. after 1st year Life of Investment 20 years Discounted Investment Costs €142,970 Discounted Net Revenue € 12,085

=>Project Funding Gap € 130,885 (=Net Eligible Costs in this case)

Maximum Investment Aid Intensity 75%

=> State Aid €107,227 (calculated today as % of Eligible Costs NPV)

* Calculated Using Discount Factor of 5%

“Exceptional Circumstances” – Assessed on a Case by Case Basis

The 2014 EU Guideline notes that “investment projects at certain airports with average traffic below 1 million passengers per annum located in peripheral regions of the Union may result in a funding gap which is higher than the maximum permissible aid intensities. Subject to a case-by-case assessment and depending on the particular characteristics of each airport, investment project and the region served, intensity exceeding 75% may be justified in exceptional circumstances” [para 103].

Subject to the case-by-case assessment, and given the stipulation in para 100 that aid should “in any case, not go beyond the actual funding gap of the investment project”, it may be that a case could be made in this example for State aid funding of up to this project funding gap of €130,885.

Appendix 4

Regional Airports Framework for Public Service Obligations (PSO) Air Services Scheme

Following the completion of the public tender process, as outlined in PART 4 of this Programme, the specifics of the Public Service Obligation in respect of the route concerned will be set out in a contract between the Minister for Transport, Tourism and Sport and the selected airline. That contract will be in accordance with Article 17(1) of EU Regulation 1008/2008 (see below) and will specify -

(a) the nature and the duration of the public service obligation; (b) the number and frequency of the services to be provided; (c) the minimum capacity (seats) of the aircraft assigned to operate the services; (d) the range of fares that may be applied; (e) the parameters for cancelled and delayed flights; (f) the parameters for calculating, controlling and reviewing the compensation; (g) the arrangements for avoiding and repaying any overcompensation.

Unlike the current contracts, the duration of the new contracts (post 2014) will initially be for a 2-year period, with the outcome of the review process to be conducted after 18 months from the commencement of the contract leading to the possibility of an extension not exceeding 1 year.

Compensation The actual total amount of the compensation already determined and payable by the Department of Transport, Tourism and Sport will be determined annually, on an ex-post basis, and will be limited to the actual losses incurred, having regard to actual costs, revenues and if applicable, profit margin, by the successful airline in operating the services, subject, as a maximum, to the limit of the amount stated in the contract in respect of each year.

Payments may be claimed by the airline on a regular instalment basis, in accordance with the procedures set out in contract. A balancing payment will be payable at the end of each contract year, subject to receipt by the awarding authority of appropriately documented claims accompanied by certification from the carrier's auditors, in accordance with the terms of the contract.

The contract will also include provision for the maximum limit of compensation in any year(s) to be increased in certain circumstances, at the sole discretion of the awarding

authority and as an exceptional matter, in the event of extraordinary changes in operating conditions, and without prejudice to the provisions governing the termination of the contract. Requests for an increase in the maximum limit of subvention in any year(s) will be considered by the awarding authority only in circumstances where the developments in question could not have been anticipated by the tenderer or are due to factors entirely outside the control of the tenderer.

References:

Article 16 General principles for public service obligations

1. A Member State, following consultations with the other Member States concerned and after having informed the Commission, the airports concerned and air carriers operating on the route, may impose a public service obligation in respect of scheduled air services between an airport in the Community and an airport serving a peripheral or development region in its territory or on a thin route to any airport on its territory any such route being considered vital for the economic and social development of the region which the airport serves. That obligation shall be imposed only to the extent necessary to ensure on that route the minimum provision of scheduled air services satisfying fixed standards of continuity, regularity, pricing or minimum capacity, which air carriers would not assume if they were solely considering their commercial interest.

The fixed standards imposed on the route subject to that public service obligation shall be set in a transparent and non-discriminatory way.

2. In instances where other modes of transport cannot ensure an uninterrupted service with at least two daily frequencies, the Member States concerned may include in the public service obligation the requirement that any Community air carrier intending to operate the route gives a guarantee that it will operate the route for a certain period, to be specified, in accordance with the other terms of the public service obligation.

3. The necessity and the adequacy of an envisaged public service obligation shall be assessed by the Member State(s) having regard to:

(a) the proportionality between the envisaged obligation and the economic development needs of the region concerned; (b) the possibility of having recourse to other modes of transport and the ability of such modes to meet the transport needs under consideration, in particular when existing rail services serve the envisaged route with a travel time of less than three hours and with sufficient frequencies, connections and suitable timings; (c) the air fares and conditions which can be quoted to users; (d) the combined effect of all air carriers operating or intending to operate on the route.

4. When a Member State wishes to impose a public service obligation, it shall communicate the text of the envisaged imposition of the public service obligation to the Commission, to the other Member States concerned, to the airports concerned and to the air carriers operating the route in question.

The Commission shall publish an information notice in the Official Journal of the European Union:

(a) identifying the two airports connected by the route concerned and possible intermediate stop-over point(s); (b) mentioning the date of entry into force of the public service obligation; and (c) indicating the complete address where the text and any relevant information and/or documentation related to the public service obligation shall be made available without delay and free of charge by the Member State concerned.

5. Notwithstanding the provisions of paragraph 4, with respect to routes where the number of passengers expected to use the air service is less than 10 000 per annum, the information notice on a public service obligation shall be published either in the Official Journal of the European Union or in the national official journal of the Member State concerned.

6. The date of entry into force of a public service obligation shall not be earlier than the date of publication of the information notice referred to in the second subparagraph of paragraph 4.

7. When a public service obligation has been imposed in accordance with paragraphs 1 and 2 the Community air carrier shall be able to offer seat-only sales provided that the air service in question meets all the requirements of the public service obligation. Consequently that air service shall be considered as a scheduled air service.

8. When a public service obligation has been imposed in accordance with paragraphs 1 and 2, any other Community air carrier shall at any time be allowed to commence scheduled air services meeting all the requirements of the public service obligation, including the period of operation that may be required in accordance with paragraph 2.

9. Notwithstanding paragraph 8, if no Community air carrier has commenced or can demonstrate that it is about to commence sustainable scheduled air services on a route inaccordance with the public service obligation which has been imposed on that route, the Member State concerned may limit access to the scheduled air services on that route to only one Community air carrier for a period of up to four years, after which the situation shall be reviewed.

This period may be up to five years if the public service obligation is imposed on a route to an airport serving an outermost region, referred to in Article 299(2) of the Treaty.

10. The right to operate the services referred to in paragraph 9 shall be offered by public tender in accordance with Article 17, either singly or, in cases where justified for reasons

of operational efficiency, for a group of such routes to any Community air carrier entitled to operate such air services. For reasons of administrative efficiency, a Member State may issue a single invitation to tender covering different routes.

11. A public service obligation shall be deemed to have expired if no scheduled air service has been operated during a period of 12 months on the route subject to such obligation.

12. In case of sudden interruption of service by the Community air carrier selected in accordance with Article 17, the Member State concerned may, in case of emergency, select by mutual agreement a different Community air carrier to operate the public service obligation for a period up to seven months, not renewable, under the following conditions:

(a) any compensation paid by the Member State shall be made in compliance with Article 17(8); (b) the selection shall be made among Community air carriers in compliance with the principles of transparency and nondiscrimination; (c) a new call for tender shall be launched.

The Commission and the Member State(s) concerned shall be informed without delay of the emergency procedure and of its reasons. At the request of a Member State, or on its own initiative, the Commission may, in accordance with the procedure referred to in Article 25(2) suspend the procedure if it considers after its assessment that it does not meet the requirements of this paragraph or is otherwise contrary to Community law.

Article 17 Public tender procedure for public service obligation 1. The public tender required in Article 16(10) shall be conducted according to the procedure set out in paragraphs 2 to 10 of this Article. 2. The Member State concerned shall communicate the entire text of the invitation to tender to the Commission except where, in accordance with Article 16(5), it has made the public service obligation known through the publication of a notice in its national official journal. In such case the tender shall also be published in the national official journal. 3. The invitation to tender and the subsequent contract shall cover, inter alia, the following points: (a) the standards required by the public service obligation; (b) rules concerning amendment and termination of the contract, in particular to take account of unforeseeable changes; (c) the period of validity of the contract; (d) penalties in the event of failure to comply with the contract; (e) objective and transparent parameters on the basis of which compensation, if any, for the discharging of the public service obligations shall be calculated.

4. The Commission shall make the invitation to tender known through an information notice published in the Official Journal of the European Union. The deadline for submission of tenders shall not be earlier than two months after the day of publication of such an information notice. In case the tender concerns a route to which the access had already been limited to one carrier in accordance with Article 16(9), the invitation to tender will be published at least six months before the start of the new concession in order to assess the continued necessity of the restricted access. 5. The information notice shall provide the following information: (a) Member State(s) concerned; (b) air route concerned; (c) period of validity of the contract; (d) complete address where the text of the invitation to tender and any relevant information and/or documentation related to the public tender and the public service obligation shall be made available by the Member State concerned; (e) deadline for submission of tenders. 6. The Member State(s) concerned shall communicate without delay and free of charge any relevant information and documents requested by a party interested in the public tender. 7. The selection among the submissions shall be made as soon as possible taking into consideration the adequacy of the service, including the prices and conditions which can be quoted to users, and the cost of the compensation required from the Member State(s) concerned, if any. 8. The Member State concerned may compensate an air carrier, which has been selected under paragraph 7, for adhering to the standards required by a public service obligation imposed under Article 16. Such compensation may not exceed the amount required to cover the net costs incurred in discharging each public service obligation, taking account of revenue relating thereto kept by the air carrier and a reasonable profit. 9. The Commission shall be informed in writing and without delay of the results of the public tender and of the selection by the Member State including the following information: (a) numbers, names and corporate information of tenderers; (b) operational elements contained in the offers; (c) compensation requested in the offers; (d) name of the selected tenderer. 10. At a request of a Member State or on its own initiative, the Commission may request Member States to communicate, within one month, all relevant documents relating to the selection of an air carrier for the operation of a public service obligation. In case the requested documents are not communicated within the deadline, the Commission may decide to suspend the invitation to tender in accordance with the procedure referred to in Article 25(2).

Appendix 5

EU Commission Decision: State aid SA. 39757 (2015N) – Ireland – Regional Airports Programme 2015 – 2019.

Department of Transport, Tourism & Sport Airports Division July 2015