Aer Rianta may be forced to dispose of Great Southern Hotels and its international assets to facilitate the reorganisation ordered by the Minister for Transport, Mr Brennan.
Legal advice given to the Department of Transport by the Attorney General has confirmed significant legal obstacles to the break up of the company into three new airport authorities, The solution may require the sale of a number of subsidiaries to boost the company's financial reserves, according to sources familiar with the problem.
The issue stems from Aer Rianta's conversion from being a statutory body to a public limited company (plc) in 1998. As a plc, Aer Rianta can only pay a dividend to its shareholder if it has built up sufficient profits to cover the dividend.
Under the plan put forward by the Department of Transport to break up Aer Rianta, the assets of the company will be distributed to three new State-owned airport authorities for Dublin, Cork and Shannon.
The Department's legal advice is that this will in effect constitute a dividend payment, because the beneficiaries of the asset distribution - the Government - is the shareholder of Aer Rianta.
The problem arises because the value of the assets that are to be distributed - the three airports - significantly exceeds the company's accumulated reserves.
According to Aer Rianta's 2002 accounts, it has accumulated profits of €200 million on its balance sheet, while the value of the airport assets to be transferred exceeds €400 million.
The Department of Transport's advisers, PricewaterhouseCoopers and Matheson Ormsby Prentice are examining possible solutions to this problem. Options such as liquidating the company or putting it into examinership have been ruled out and the proposals being considered centre on boosting the company reserves either through internal "financial engineering" or the sale of some parts of the business. The break up of the company is now expected to take place in a phased manner rather than the "big bang" approach originally envisaged.
The Great Southern Hotel group is valued at around €200 million. It made profits after tax of €3.9 million in 2002 on a turnover of €43 million but, in common with other hotel groups, is facing a difficult trading environment. Under the break up plan announced last summer, ownership of the hotel group was intended to be transferred to the Dublin airport authority, which is to assume all of the Aer Rianta group debts of more than €400 million.
Aer Rianta International had a turnover of just under €47 million in 2002. It manages airports and duty-free business overseas as well as investing in other airports.
Through it, the company holds stakes in Birmingham, Dusseldorf and Hamburg airports plus duty-free operations in Montreal, Kiev Bahrain, Moscow, St Petersburg and Athens.
Speaking last week in the Dáil, the Minister for Transport, Mr Brennan, acknowledged the extent of the difficulties.
"Aer Rianta is a public limited company and there are plc rules as well as EU regulations surrounding the maintenance of capital. We are working our way solidly through those complicated issues. The consultants are helping us implement them."
The Minister added that he expected to meet the deadline of this summer for the reorganisation of the airports.
The three authorities are intended to operate independently and compete with each other for business.
