STRONG growth in passenger numbers at all three airports has resulted in a 20 per cent growth in pretax profits to £37.6 million at the state airport operator Aer Rianta.

But the airport authority has once again warned about the impact of the possible loss of duty-free sales within the EU from 1999, with chairman Mr Noel Hanlon stating that it could result in "a dramatic increase" in airport charges.

Chief executive Mr Derek Keogh stated that Aer Rianta and its partner, Natwest Ventures, expect to complete the acquisition of a 40 per cent stake in Birmingham Airport in July and be managing the airport by the autumn.

Mr Keogh declined to reveal Aer Rianta's share of the investment, but said: "Within the joint venture company, we get full credit for our know-how and credibility. Our contribution is substantially less than our partner."

A confidential memorandum to the seven local councils which retain a 51 per cent interest in the airport indicates that the councils expects to receive £80 million for the 40 per cent stake. But aviation industry sources have disputed this figures and have indicated that, at most, the Aer Rianta-NatWest consortium will pay between £40 million and £45 million.

Mr Hanlon also stated that legislation to give Aer Rianta full semi-state status is likely to be completed soon, a move that will result in the transfer of assets from the Government to Aer Rianta itself. Currently, Aer Rianta only manages the airports on behalf of the Government, and the conversion to a semi-state would allow Aer Rianta to source external funding itself to support its expansion, rather than look to the Government for support.

Total group turnover was up 9 per cent to £213 million, but this figure excludes £157 million in sales from the various duty-free shops operated by Aer Rianta International. The airports authority paid £11.9 million to the Exchequer and spent £24 million on capital expenditure in 1995. Despite the "dividend" and the capital expenditure, net debt was reduced by £6.8 million to £21.1 million.

The three airports handled an additional 1.25 million passengers for a total of 10.57 million, with Dublin passenger traffic up 15 per cent to eight million, Shannon up 2.4 per cent to 1.6 million and Cork traffic up 21 per cent to 970,000.

On the possible abolition of duty-free sales within the EU from mid-1999, Mr Keogh said that it is probably 50-50 on whether the EU would allow a further derogation and allow duty-free sales to continue. Aer Rianta would stand to lose a net £20 million a year in sales if duty-free within the EU was abolished, said Mr Keogh.

"We are not confident, but we are fighting the battle. it's a tough battle and this time it will require the European Parliament and the European Commission to change existing legislation. If nothing is done, duty-free goes in June 1999," he said.

If there is no derogation, then Aer Rianta will try and compensate in various ways staying in retailing and developing the duty-paid sales, increasing its overseas business, both in airport management and duty-free management opportunities outside the EU and also by spreading the revenue base through diversification. But Mr Hanlon was more blunt about the consequences. of losing European duty-free sales. "Such a loss would require a dramatic increase in charges in 1999," he said.

Profits at Aer Rianta's Great Southern Hotels subsidiary rose sharply from £1.6 million to £2.1 million and further expansion of the chain is planned. Government. approval for a hotel at Dublin Airport is pending, while it is understood that the hotel group is also looking at developing a hotel at Cork Airport, to take advantage of the Lee tunnel when it is completed. Northern Ireland is another possible location, it is understood. The Cork Airport hotel and any other development may be operated through a leasing arrangement with a developer, one source said.