Is Aer Lingus on the block?

By Andrew Bushe

DUBLIN — Since its first flight in the 1930s, Aer Lingus has had a second part to its name: Irish Airlines. But is the Irish about to be diluted, or even deleted?

A number of the world’s largest airlines are examining buying part of Aer Lingus after the Irish government decided against a stock market privatization and revealed it is considering a possible trade sale.

The most high-profile of Ireland’s state companies, Aer Lingus desperately needs at least £150 million to update its fleet and modernize its operation.

A new subvention from the state is not permitted under EU rules. It had originally been mooted that an IPO would raise about £500 million, but now the company may only be worth about £300 million.

Originally a trade sale had been ruled out — despite offers from British and U.S.-based airlines — but since the stock market sell-off was chosen as the preferred option, the airline has suffered a series of setbacks.

Revenue has been hit by one-day strikes for better pay and conditions, the economic downturn and the foot-and-mouth crisis. As a result, profits are expected to plummet this year.

The company’s difficulties have been compounded by an investigation of two complaints of sexual harassment against its recently appointed chief executive, Michael Foley. Last week, Foley failed in a court challenge against the company’s methods for investigating and deciding on the claims.

Minister for Public Enterprise Mary O’Rourke, who oversees the Irish government’s current 95 percent ownership of Aer Lingus (company staff own the other 5 percent) said corporate advisers are assessing the possibility of a trade sale, but she stressed it was at an "extremely tentative stage."

The government’s stock market plans had been ruled out "for the moment" because the business climate for any flotation, and particularly airlines, was not a good one. The airline’s staff wanted to increase its 5 percent stake if it was floated.

O’Rourke said Aer Lingus faced "quite an uncertain future" because profits will be "considerably down" this year.

"We do not want a situation to arise where it has gone too far before we can put it on a steady course," she said.

Seven years ago, the airline got into financial difficulties and a rescue plan was implemented.

The late 1990s witnessed a dramatic turnaround for the airline’s fortunes, most especially over the Atlantic. But maintaining profits has become a more difficult option in more recent months.

The trade sale move has been attacked by the IMPACT trade union, which has threatened industrial action about lack of consultation. A Labor Party spokesman, Emmet Stagg, accused O’Rourke of "hawking" the airline around the world.

Stagg said the "sudden mid-course switch" in the sale plans showed the minister had no coherent strategy for Aer Lingus.

"Clearly, having made such a mess of the privatization of Eircom, which left so many small investors badly burned, she does not want to risk the odium of another disastrous floatation," he said.

"To sell the airline off in this way would be to leave it vulnerable to be taken over by a rival whose first action might well be to close it down altogether, or reduce it to a token role."

Two years ago, the government rejected a possible purchase of 10 percent of Aer Lingus by British Airways. Aer Lingus is a member of the "oneworld" alliance with the British airline. The alliance’s largest carrier is American Airlines and other members of the group include Canadian Airlines and the Australian carrier Qantas.