Aer Lingus privatisation

The question must be asked of SIPTU: why did it refuse Aer Lingus chief executive Dermot Mannion the opportunity to meet the workers last week? And this: was it afraid that he might persuade them of the merits of selling the airline to the private sector? As well as this: is it possible that fighting the sale might be very damaging to the prospects for the airline and its remaining 3,500 employees?  

SIPTU seems to have adopted an ideological position on privatisation. It's bad, but State ownership is good. That's far too facile an analysis.

Clearly there are times when the State formation of an enterprise, or its retention in the public ownership, is in the public good (which is not necessarily the same as being for the good of the employees). Clearly, there must also be times when the State has no useful involvement in an enterprise (such as the ownership of the Great Southern Hotels chain). Quickly though, SIPTU has moved to a position where its members have agreed to vote on industrial action against privatisation without having aired an adequate debate. Interestingly, the other main trade union at the company, Impact, is engaging with Aer Lingus by setting down conditions that could lead to its approval of a sale.

The Aer Lingus situation throws up some interesting dilemmas for the Government. Clearly, the airline is an iconic business for the State and the potential for damage to the country's economic interests if it were to follow the Eircom model of under-investment or asset stripping could be large. Vital routes could be lost if, for example, new owners decided to sell its slots at Heathrow (if that is possible) or use them for non-Irish purposes. The transatlantic route could go without (Aer Lingus) servicing if new owners decided they were not economically viable.

However, this is where it gets more complicated. The State's experience in selling companies has not been all bad: Irish Life was done at the right time and at a fair price and there was no economic damage. Eircom was and remains a monopoly, whereas Aer Lingus operates in competitive markets. Should it fail others would provide necessary services for the country and, judging by the Ryanair experience, at reasonable prices.

It is those competitive factors that mean that Aer Lingus has been delayed long enough in making decisions about its future... and which is why SIPTU (and ICTU) may be myopic in their approach.

Aer Lingus has done excellently in recent years in increasing its productivity and in reducing its prices. As a national flag carrier it has achieved profit margins that are the envy of the rest of Europe. The unions can rightly claim credit for the performance of its 3,500 remaining employees (down by half from five years ago).

However, next month Ryanair opens five new routes out of Dublin Airport and within a year will have 18 new routes to add to its existing offers to customers. Ryanair has become the biggest carrier into the country and will improve its position and importance if Aer Lingus is not in a position to invest further in its own new routes and new fleet.

Mannion wants to spend €2 billion over the next six years on new aircraft to serve new routes. He does not have the existing cash resources or ability to borrow to do so (especially as there is a pension-funding requirement of €200 million as well). He has to raise capital, probably about a quarter of his overall requirement, if he is to be able to borrow the rest. If he doesn't do this Aer Lingus will find its competitive position eroding badly, to the detriment of the State as shareholder and to the employees.

Aer Lingus does not seem to have a Plan B if it is unable to raise the required funds. The unions could suggest that the Government could invest in the company (and there are ways in which this would be allowed under EU rules). But does the State really want to invest €700 million or so, instead of allowing the company to raise money from outside investments? Is that a good use of State cash?

SIPTU and ICTU have been pushing the idea of a super holding agency that would hold most or all of the State's investments in commercial enterprises. It, in turn, could sell shares to the National Pension Reserve Fund or to domestic pension funds. There is a big problem with this, however. All of those pension funds are required to seek the best returns on whatever investments they make. They might be very reluctant to invest in a diverse holding company where they would perceive that the unions would have a veto over necessary cost initiatives.

Taoiseach Bertie Ahern is insistent that the decision to allow the sale has been made and that it will proceed. But, typically, delays are being allowed and the unions are using this as a card in the latest partnership negotiations. Already there is talk of a sale being moved from July to September. Should stock markets move downwards it would provide Mr Ahern with a ready-made excuse to say that while a sale in principle is still agreed the timing is not right. But where would that leave Aer Lingus?

Matt Cooper presents The Last Word on 100-102 Today FM, Monday to Friday, 5pm to 7pm