It was inevitable that Aer Rianta would end up as the whipping boy following the grievous wounds inflicted by aviation regulator Bill Prasifka. Most air travellers who have experienced the appalling conditions at Dublin Airport over the years would concur.

The management team of the airport has, undoubtedly, to shoulder part of the blame. Also, with the unpredictable demands on the airport from Celtic Tiger - with passenger traffic soaring from eight million passengers in 1995 to 14 million in 2000 - strains were bound to emerge. But doesn't a large share of the blame lie with the previous Fine Gael-led government?

The expenditure programme in 1995 was held up for three years due to the intervention of consultants.

First, consultants scaled back Aer Rianta's planned capital expenditure because they considered the plan too aggressive in terms of projected passenger flows. As it happened, the out-turn even exceeded the airport operator's own predictions!

More consultants were called in when the McEvaddy brothers, Ulick and Des, made a proposal to develop the small Huntstown facility into a new terminal five years ago. That was turned down by the then government.

Had the planned expenditure been allowed in the mid-1990s, the airport's facilities would be much advanced now.

That, of course, is history, and laying blame is not going to help.

The regulator's report implied that the airport group might have to slash 75 per cent off its £1 billion capital investment programme. That would not be in the long-term interests of the airports.

The reaction by the group's chairman, Noel Hanlon, that its planned expansion would continue is a proper commercial decision. This includes a £100 million expansion at Cork airport, a £100 million runway at Dublin airport, a £50 million rail link (this is vulnerable), a £100 million new pier at Dublin airport (Pier D), a £125 million internal road system at Dublin airport, £37 million of cargo facilities and £77 million of car parking facilities.

Also, the regulator's call for a 20 per cent increase in landing charges at Cork and Shannon airports was welcomed.

The regulator's statement that only £272 million of the planned £998 million capital investment programme should be recovered from landing fees implies a direct relationship between landing fees and the capital investment programme. So where will the funds come from?

First let us look at Aer Rianta's ability to fund substantial capital expenditure from its own sources. In 2000, its operating cash flow amounted to £78.7 million and it received dividends of £2.9 million from associated companies.

However, servicing of its loans took £12 million, or a significant 15.3 per cent of operating cash flow. Then there was a capital investment of £94.3 million and a loss of £14 million from the sale of fixed asset. Following acquisitions and disposals, there was a negative cash flow of £57.5 million at the end of the year.

So how was this financed? Quite simply, by raising its borrowings. The net effect was to increase its net debt from £164 million to £210 million in just one year. This is reflected in the increased gearing (net debt as a percentage of shareholders' funds) from 68 per cent to 75 per cent.

The planned capital investment is for a period of some 10 years. The airlines that use the airport are its greatest critics (particularly Ryanair). They, however, work to a different agenda and plan over a shorter period (witness their cancellation of aircraft when there are question marks over a short-term cycle). Therein lies a conflict.

Aer Rianta could raise part of the funds needed from its internal sources. It could also increase borrowings further. Noel Hanlon pointed to a possible sale of its Great Southern Hotel group as part of the funding. This was a form of kite flying and, in any event, the Government has turned down the idea for the moment.

While Great Southern is a valuable business, its sale would not make a significant impact on its funding requirements. It owns eight hotels, which generated a turnover of £32 million and recorded a net profit of £4 million last year on fixed assets of £61.7 million (well undervalued) and shareholders' funds of £45 million.

On a price/earnings basis, the group would be valued south of £100 million but the 18-hole golf course at Parknasilla and the expansion of the Dublin Airport hotel might bring the value up to some £120 million. It is worth noting that Aer Rianta's eight subsidiary companies (these include the hotels, duty-free in Montreal and European management companies) account for 15 per cent of net profit, while its associated companies account for 29 per cent. If it is serious about an eventual public flotation for its shares, it would have to give serious consideration to the retention of these.

Contrary to some views, Aer Rianta has raised sufficient funds since the end of last year to fund the first five years of its investment programme. It has raised a €250 million bond, which has been used to pay off existing debt. It has also agreed a €125 million loan from the European Investment Bank (EIB).

That has not yet been drawn down but borrowings (excluding the EIB loan) since the year-end have increased to some £240 million, increasing the gearing to around 80 per cent.

The Aer Rianta board meets on September 26th to discuss the regulator's critical report. The board is likely to appeal the findings.

Already the Minister for Public Enterprise, Ms O'Rourke, who has raised the idea of a competing terminal at Dublin Airport, has agreed to set up an appeals panel to examine the regulator's decision.

That panel should look closely at how the regulator came to some conclusions; the most ludicrous one was that the fire engines should not be replaced after 12 years, but should be maintained. Also, was there an undue focus on short-termism? But the regulator will still have the final say unless his decision is successfully appealed to the High Court.

A competing terminal - Ulick McEvaddy said one could be completed within three years if he got the go-ahead - would provide a greater competitive edge to Aer Rianta's operations; it would also be good for the travelling public. It should not be put on the long finger. - Bill Murdoch's column appears on the first Friday of every month.