09/01/20

Purchase of Aerfort Chonamara

The Department of Culture, Heritage and the Gaeltacht has several contracts in place with regard to the Aran Islands air service. In June 2018, the Department was given notice that the operator – Galway Aviation Services Ltd (GASL) trading as Aer Arann Islands – was withdrawing from both the contract to provide the Aran Islands’ air service and the contract to manage Aerfort Chonamara (“Airport Services Contract”) with effect from 6 December 2018. The Airport Services Contract provided the Department with access to the GASL-owned airport. This proposed termination of the Airport Services Contract meant that there would no longer be a viable airport on the mainland in County Galway to facilitate the air service.

The Department examined a number of alternative mainland landing options, including operating a service from Shannon Airport and constructing a new airport in the Connemara area.

At the same time, discussions where entered into between the Department and GASL, through the respective legal advisors, with the aim of trying to reach an agreement that would be to the satisfaction of all parties with regard to the continued use of Aerfort Chonamara.

This process resulted in Heads of Agreement being agreed between the Department and GASL in November 2018. These set out a process under which negotiations could proceed in relation to the potential purchase of Connemara Airport by the Minister for a value, which would be agreed in accordance with the terms of the Heads of Agreement and subject to the requirements of the Public Spending Code.

In light of this, GASL agreed to withdraw its termination notice in relation to the Airport Services Contract, and agreed to continue to provide access to Aerfort Chonamara, in accordance with the terms of the Airport Services Contract, until September 2021, thus securing the availability of the airport in the short term.

Following detailed discussions and negotiations, which included legal considerations, the Department agreed to investigate and consider the purchase of Aerfort Chonamara in accordance with the Heads of Agreement of November 2018. This would be done while also having regard to the ongoing difficulties of operating a subsidised air services in circumstances in which the airport was in private ownership, and as part of a long term strategy to ensure continued services to the Aran Islands and competition in the provision of those services.

A detailed analysis was undertaken to evaluate the case for purchasing the airport. This included a valuation of the existing facility conducted by Bannon Commercial Property Consultants Limited (Appendix A), evaluation of alternative options, including the option to build an alternative facility, which was costed by external quantity surveyors Mitchell McDermott Construction Consultants Ltd (Appendix B), legal and engineering due diligence, and a business case under the terms of the Public Spending Code, prepared by Northpoint Aviation Services (Appendix C).

The aim of the initial valuation was to provide a market value of the existing asset. This valuation examined the buildings and runway without giving consideration to the construction costs of new facility similar to the existing asset.. This valuation came to €600,000.

The second valuation, carried out by Mitchell McDermott Construction Consultants Ltd was commissioned by the Department, in accordance with the terms of the Public Spending Code, to establish the likely construction costs of a new facility similar to the existing asset.

This valuation examined the cost of a new terminal, a new hangar, a fire tender shed, a new runway and apron and external works including a new carpark, drainage and lighting and water treatment. This cost estimate came to €7.9m. This figure is exclusive of costs such as VAT, site acquisition, planning and statutory fees, airport equipment, lighting etc. to the runway and air traffic control/navigation equipment.

The business case undertaken by Northpoint Aviation Services examined six options pursuant to the terms of the Public Spending Code, which included the acquisition of Aerfort Chonamara by the State, funding of a new-build airport by the State, and the provision of air services to the Aran Islands from Shannon Airport. The purchase of Aerfort Chonamara was identified as the most advantageous.

Arising from these considerations, as well as detailed contract negotiations with the vendor and approval by the Department of Public Expenditure and Reform, the Minister of State approved the purchase of the airport at a cost of €2.75m.

The acquisition by the State of this facility will ensure that the Aran Islands air service can continue to operate from Connemara, and to do so in proximity to the ferry service.

While it is expected that this once-off acquisition will result in savings for the exchequer over a number of years, the rationale for purchase is also firmly rooted in the need to ensure continuity of service and provides certainty and assurance to the communities on Inis Mór, Inis Meáin and Inis Oírr as regards the Government’s long-term commitment to this lifeline transport connection.

Both valuations, as well as the business case which was carried out under the terms of Public Spending Code, can be accessed below.

Appendix A – Bannon Commercial Property Consultants Limited Valuation

Appendix B – Mitchell McDermott Construction Consultants Ltd Valuation

Appendix C – Northpoint Aviation Services Business Case

 

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Department of Culture, Heritage and the Gaeltacht, 23 Kildare Street, Dublin , D02 TD30. Tel: 01 631 3800 / LoCall: 1890 383 000

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