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Ill considered & ill judged sale of Aer Lingus must be opposed

Issued : Thursday 6 July, 2006

In the years to come today will be seen as a bad day for the country and a bad day for Aer Lingus. Today the Government is asking for the approval of this house for the sell off of our national airline.

Aer Lingus has played a critical role in the Irish economy. As an island, we are heavily dependent on air travel for our trade and our tourism. We are fortunate in the services that Aer Lingus has built up so that as travellers we have direct access to many destinations and access via Heathrow to almost anywhere in the world. It is critical for our economy that those services are maintained. The only sure way of doing that is by retaining the Company in Irish ownership.

The Government justification for the sale of Aer Lingus is that the airline needs investment so that it can continue to grow. No-one denies that the company needs access to capital and we all want to see the Company expand.

It is important to note that the capital needs of the Company have never been accurately quantified. Various figures have been tossed about but at no stage have we seen a Business Plan setting out the investment needs over say, the next 10 years. It has been suggested that under open skies Aer Lingus will need significant numbers of new aircraft. We hope that that will be the case but the reality is that the Open Skies issue is far from being resolved and indeed has recently been set back by resolutions of the U.S Congress. We all accept that over the coming years the Company will need capital but one has to ask, if that is the case, why is the Government proposing to remove itself as a source of capital from the Company? That is exactly what they are doing.

If Aer Lingus needs capital, then it has a number of options – it could borrow based on its own performance. It could enter into long-term leases or alternatively the Government could invest in the Company. We know that there is no obstacle to them doing this, in spite of the erroneous impression that some Government representatives have been trying to give to the contrary.

If this is a good investment for the private sector, then it is also a good investment for the public sector. And the Labour Party, as well as Congress, has put forward proposals for a State Holding Company, a vehicle through which investment could take place while also ensuring commercial freedom.

The traditional argument for flogging off State assets has been to raise funds for the Exchequer. But that doesn’t hold these days. The Government coffers are overflowing. The reality is that this right-wing Government is fundamentally opposed to a commercial semi-state sector and its motivation is entirely ideological.

So what of the proceeds of the sale?

What about the promises to invest in the Pension Fund and in new aircraft? – We’re not getting any of that. The Government now proposes to sell off up to 60% of the Company, to raise between €3-400 Million and to take the money & run.

In the process there will be buy-in by private investors who will undoubtedly use the company for their own interests. Private investors will act as private investors always do. They will seek to get the best possible return on their investment. In other words, to make as much as they can as quickly as they can and to hell with the consequences. And the consequences could be very damaging for the company and for all of us who depend on good air transport links.

It is quite possible that as a nation we will lose control of our own air travel services, as Aer Lingus becomes merely a vehicle for profiteering, just like Eircom.

In the General Principles, the Minister makes vague references to our strategic interests. He says that “sales or transfers of slots at Heathrow will be subject to a shareholder’s resolution” and that “provision will be made that the resolution will not be passed, if opposed by a defined percentage of shareholders”. He goes on to say that “this will enable the State, along with other shareholders, to prevent the disposal of slots against Ireland’s strategic interests”. This is patent nonsense. Apart from the fact that they do not define the percentage, there are three other pertinent points.

•Firstly, the EU is likely to rule against such a so-called golden shareholding and interestingly, the Government has made no formal approach to the European Commission on this.

•Secondly, while the State may retain a minimum of 25.1% on the initial public offering, there are no proposals whatsoever to protect that shareholding from dilution on the proposed new share issue.

•Thirdly, if a mechanism were found to retain that kind of influence, it would so devalue the company share price as to render the whole exercise worthless. This is a fig-leaf and the Minister should be honest enough to admit it.

As far as the promises to look after the pensioners are concerned, it now appears that the Government has reneged on that also. The Government is walking away from the pension issue entirely. This section in the General Principles starts with “Pension issues are primarily matters for the Company and the staff”. It is quite clear that the Government is washing its hands of it.

The pension shortfall, we are told, is to be met through the issue of new shares, as well as higher contributions from the Company and the workforce. Apart from the fact that there is no guarantee that this will happen under the new ownership structure, there is nothing about the existing pensioners and their separate concerns.

The detail of the General Principles before us today is sketchy to say the least. One has to ask if Minister Cullen actually understands the gravity of what he is proposing. As recently as 31st May, the Minister told the Joint Committee on Transport, “I clearly stated that the proceeds (of the IPO) are for investment in Aer Lingus”.

When pressed on this he went on to say “the reason we are putting Aer Lingus on the market is so the proceeds will be invested in the Company”. When asked again what he intended doing with the proceeds from the sale of the State share he repeated for the third time “we will invest then in the company”.

Now either the Minister simply did not know what he was talking about or else he was deliberately misleading the Committee.

Given the cock up that he caused and the wanton waste of public money that he was responsible for in relation to e-voting, I believe the former explanation is the more likely.

Aer Lingus is too important to the economy and to the country generally to subject it to this kind of incompetence.

We should also note that the Oireachtas Committee on Transport is in the process of preparing a report on the implication of the proposed sale of Aer Lingus and it is entirely premature for the House to pre-empt those deliberations.

The Labour Party has maintained from the very beginning that the proposal to privatise Aer Lingus was an ill-considered and ill-judged move that would serve neither the national interest nor the interests of the travelling public. However, it now appears that the Government has not been honest with either the public or the Aer Lingus workers. This motion must be defeated.