EU blows aviation incentives off radar

Government plans to create thousands of jobs in a potentially lucrative business at Shannon Airport hang in the balance, after the European Commission vetoed a special tax incentive scheme designed to attract major international investors.

The Government has been forced to start new negotiations with EU authorities to try to come up with an amended tax break plan, which was a flagship project that was earmarked to generate thousands of jobs, by facilitating the construction of aircraft maintenance hangars and ancillary facilities in Shannon.

The decision has been described as a “disappointing set-back” and a “serious blow” by Fianna Fáil Deputy Timmy Dooley, who hopes efforts will continue to ensure the revised plan will be successful.

However, Fine Gael Deputy Pat Breen believes this move does not jeopardise Shannon Airport’s efforts to develop an international aviation centre and will, in fact, “probably put Shannon in a stronger position”.

Deputy Dooley expressed concern the revised tax incentive package would be much less attractive for international investors. He said Shannon Group plc is trying to attract business away from places like Arizona, where a lot of existing business is carried out, in much better weather conditions when compared to Ireland.

Following the abolition of Shannon Development, he said it could be even more difficult to attract the necessary investment if the tax incentives are reduced.

“Shannon Airport is not just about passenger numbers. It is also important to retain between 7,500 and 8,000 people that are employed in the industrial zone. In order to save Shannon Airport, Shannon Development was disbanded and its assets were subsumed into the new Shannon Group. That works up to a point.

“Where that falls down is you no longer have Shannon Development in place to promote and attract new businesses to the region and the tax incentives package, which was supposed to do this, has now been dealt a serious blow,” he said.

A scheme of accelerated capital allowances was proposed by Finance Minister Michael Noonan in Budget 2012, as part of a series of measures for State airports, which would help put Shannon back on a sound business footing. It was expected to kickstart the development of an aviation services centre that would engage in aircraft maintenance, dismantling of aircraft for parts and converting aircraft into freighters, in addition to establishing an international aviation training centre.

Fianna Fáil economics advisor, Kevin Barrett, explained under the original scheme proposed by Minister Noonan, the cost of developing an aviation maintenance hanger would be written off over seven years, compared to usual term of 25 years.

While this tax incentive package was available for the three airports, Mr Barrett pointed out Shannon was deemed to be the most suitable to attract this type of investment. He said the EU deemed the initial plan was anti-competitive and did not comply with its state aid rules.
He described the latest proposal as a “watered down” version of what was agreed two years ago. If the new tax incentives are scaled back, he warned Shannon Group plc would have to charge a higher rent to any company, in order to get a return on its investment.

“What hasn’t been explained is why it took the European Commission so long to confirm that what was put forward two years ago wasn’t acceptable. It is not clear at what stage the European Commission started to come down on the side of objecting to this plan.

“If the revised proposal is accepted, Shannon Airport will then have to present a plan to construct an aircraft maintenance facility and then rent it to aviation firms,” he outlined.

Having raised the issue with Finance Minister Michael Noonan, Deputy Breen said the minister has confirmed that a revised application has now been resubmitted, following on from discussions that took place between his officials and the commission.

“Amendments are also being made to the section in the current Finance Bill which will, hopefully, result in approval being granted by the Commission. What is envisaged is that the main change to the scheme will restrict the areas that the hangars and ancillary buildings can be built into ‘assisted areas’ as defined in the Regional Aid Map for Ireland 2014-2020. This change will ensure that Shannon Airport will still qualify for the scheme, while Dublin and Cork will probably be excluded.

“I would be hopeful that the Commission would make an early decision on this submission. In the event that a decision has not been issued by the end of this month, I will be lobbying the Commission and our MEPs when I am in Brussels in early December,” Deputy Breen added.
“There is keen interest from aviation-related business in setting up in Shannon and an early Commission decision is important,  so that the airport authority can begin to develop this side of their business,” he concluded.

A Shannon Group plc spokesperson stated Minister Noonan announced a scheme of accelerated capital allowances entitled ‘Incentives for certain aviation service facilities’ which were provided for in Section 31 of the Finance Act 2013.

This scheme is intended to provide for accelerated capital allowances for the construction and refurbishment of certain specialist buildings and structures for use in the maintenance, repair, overhaul or dismantling of commercial aircraft nationally, and not just at Shannon.
The group is awaiting finalisation of this scheme and relevant legislation.

“The Irish Aviation Services Centre (IASC), which is a Shannon Group plc business unit, intends to maximise any opportunity arising from specific allowances for this sector in Ireland.

“Some 1,600 staff are already employed in 40 firms at Shannon and IASC fully intends on building on this considerable presence over the coming years,” the spokesperson added.

Dan Danaher