Aer Lingus is now likely to be floated on the stock market towards the end of next year, after the Government gave the green light for the privatisation of the airline. In the meantime, the Cabinet has approved a strategic alliance with One World, the global partnership dominated by American Airlines and British Airways.
Aer Lingus welcomed the move, and said if the negotiations went smoothly, the airline could be a full member of the alliance within five months. British Airways said Ireland represented an important market for the company, and it looked forward to the partnership.
In a statement, the Minister for Public Enterprise, Ms O'Rourke, said concluding an operational alliance with One World was the urgent task facing Aer Lingus.
"Looking further ahead and to the need for additional equity capital for Aer Lingus, the Government has also mandated both myself and the Minister for Finance to start a process with the board of Aer Lingus and the relevant social partners to address Aer Lingus' funding requirements," she added. "This would involve examining possible sources of funding, including an Initial Public Offering (IPO)."
She ruled out a proposal to sell 10 per cent of the company immediately to One World, saying it would not provide the scale of funding required. "That will lead us, I believe and the company believes, to the IPO road," Ms O'Rourke said later on RTE.
Aer Lingus, on the basis of its latest financial figures, would be likely to be worth around £500 million to £650 million when floated on the market. This means that even if the Government sold off its entire stake, the flotation would be much smaller than Telecom, when more than £3 billion of shares were sold to the public and institutional investors.
Market sources in Dublin said while investing in Telecom was a one-way bet for the public, the more uncertain prospects for Aer Lingus and the prospect of the airline industry entering a downturn would colour the attitude to its flotation.
The Cabinet move came after it received a review of an Aer Lingus management report by consultant Salomon Smith Barney. The review said Aer Lingus required £150 million (€190 million) in the next 12 to 18 months, agreed with Aer Lingus that a relationship with one of the four global airline alliances was necessary, and suggested One World was the best option.
"I am told that for Aer Lingus to remain unaligned would result in a profits slump of about £20 million (€25.4 million) annually - effectively a halving of the existing level of profits," Ms O'Rourke said.
Joining a strategic alliance would not only offset this profits slump, but also provide opportunities to increase profits, she added. "Aer Lingus is one of the few airlines in Europe outside a strategic alliance," Ms O'Rourke said.
Aer Lingus' chief executive, Mr Garry Cullen, said an alliance would benefit passengers, providing additional destinations and a one-stop-shop for travel purchases.
"It will allow Aer Lingus to embark on a programme of further development, enhancing the availability of good quality, exceptional value, frequent and reliable scheduled services and well-timed connections between Ireland and destinations worldwide," he said.
One World includes British Airways, American Airlines, Cathay Pacific, Canadian Airlines, Quantas, Iberia, Finnair and Lan Chile.
