The government has decided that it will retain at least 25.1 percent of the airline after privatization. This strategy is aimed at ensuring that private investors could never buy-out the airline in full and thus endanger vital national interests by, for example, discontinuing strategically important but financially troublesome routes.
The State’s financial advisors have been told to start work on the sale “immediately.” It will take the form of an Initial Public Offering (IPO) rather than a trade sale. It is understood that the IPO will take place in September.
Some observers had hoped privatization would take place as early as June but that now looks extremely unlikely. The height of summer is regarded as an unfavorable time for floating companies because many financial power players are on vacation. Therefore, September is the earliest window for the sale.
Ireland’s Transport Minister Martin Cullen talked up the benefits of the partial-privatization as he made the announcement in Dublin yesterday:
“This is a good day for Aer Lingus staff, customers and the broader Irish economy,” he said. “We have cleared the way for Aer Lingus to access the funding necessary to offer new routes, expand employment and offer better consumer choice.”
A statement from Cullen’s department also offered the primary rationale for the sell-off:
“The transaction is taking place in order to give Aer Lingus both the commercial flexibility and the financial muscle to compete and succeed in the global marketplace,” the statement said.
Aer Lingus needs more money to upgrade its fleet and expand its services. The government’s argument has always been that a part-privatization is the best way to raise those funds.
However, not everyone is happy about yesterday’s announcement.
The labor unions representing Aer Lingus’ 3600 workers have long been skeptical about privatization, with the biggest union of all, SIPTU, trenchantly opposed to the plan. Last week, SIPTU members voted overwhelmingly to strike if privatization went ahead without their concerns being addressed.
The likelihood of such strike action taking place is unclear for the moment, but SIPTU’s Michael Halpenny was fiercely critical of the government yesterday.
Halpenny told RTE News that the announcement made yesterday “a very bad day” for Aer Lingus workers and the State at large.
“Once again the Minister has mandated Aer Lingus to resolve the key issues raised by the trade unions during the consultation process, but our experience to date has been that management are dragging their heels in addressing the issues of concern to our members,” Halpenny added.
The main issues concerning the unions are possible job losses and a projected shortfall in the employees’ pension fund. It is not yet clear whether the government will give any firm commitments in this regard.
There has also been some disquiet in the labor movement over the whole privatization issue, with IMPACT, the union that represents pilots and cabin crew, taking a significantly more conciliatory approach than SIPTU.
IMPACT has also been seeking assurances that the government will retain its stake in the airline over the long-term. Union leaders fear that if the airline needs more funding at some point in the future, the government might opt to dilute its shareholding rather than inject extra cash. If that were to happen, a full takeover could become possible.
At present, company law requires that a full takeover cannot take place unless at least 80 percent of a corporation comes under the bidder’s control. In its statement yesterday, the Department of Transport said that the retention of at least 25.1 percent of Aer Lingus would give the government, “the flexibility to balance the airline’s commercial needs while protecting the State’s strategic interests.”
There are clearly several elements of Aer Lingus’ privatization that still need to be clarified. But there is no doubt that yesterday’s announcement represented one of the most significant moments in the airline’s seventy-year history.