Aer Lingus group operating profit rose by £4.3 million last year, to £46.1 million, indicating a stronger performance in its core airline business.

However, exceptional write-offs mainly related to the proposed disposal of its TEAM aircraft maintenance subsidiary meant the group posted pre-tax losses of almost £48 million, compared to a profit of £41 million in 1996.

It will cost the company £55 million to buy out the TEAM workers' letters of guarantee. The company also made a provision of a further £30 million in writing down the assets, associated with exiting the maintenance business. The total exceptional cost of selling off its maintenance activities, also including the sale of 90 per cent of Airmotive, was £90.4 million.

The airline's trading performance was described as strong, by the group's chairman, Mr Bernie Cahill, "given the exceptionally competitive airline marketplace in which Aer Lingus operates".

Mr Cahill said the provisions against the costs associated with divesting the aircraft maintenance operations were made in the accounts, but he described this as "a necessary investment in the future of the group".

TEAM, he said, had a bright future, but not as part of Aer Lingus. It needed substantial investment which Aer Lingus could not afford.

Before tax and exceptional costs, profits rose by £4.7 million to £41.2 million, representing a 10 per cent increase. Profits from air transport increased by £2.2 million, profits from "other" activities were £1.7 million compared with a loss of £400,000 last year, and interest charges were £1 million lower at £300,000.

The Aer Lingus group's turnover rose by £36.6 million to £802.3 million. However, the cost of sales rose by £11 million to £568.8 million. The group's wage bill rose by almost £19 million to £198.9 million and staff numbers fell by just 100. Group financial controller and company secretary, Mr John O'Donovan said much of this was attributable to a special 5.5 per cent wage increase which staff were given in addition to the normal wage rounds. It followed independent arbitration on the matter.

Mr O'Donovan said if this had not been paid, group profits would have been up to £7 million higher, bringing the increase in operating profits to almost 20 per cent higher than 1996. However, he said it paved the way for a £50 million savings plan from 19982002, which would include increases in productivity and some payroll savings. Of this, about 30 per cent, or £15 million would come from payroll savings. The remaining £35 million would be in operating costs such as in marketing, distribution and fuel usage, according to Mr O'Donovan.

The group's sales and marketing costs increased by 16 per cent last year, while general operating costs were up just 2 per cent.

Mr O'Donovan said the company had invested very heavily in the brand last year. "We grew traffic numbers by 10 per cent overall, which automatically causes an increase in sales and marketing costs," he said.

The company's return on sales at 6.1 per cent was down from 6.7 per cent in 1996. The company's targeted return on sales is 8 per cent in the medium term. "We are confident we can achieve that," Mr O'Donovan said.

Mr Cahill maintained that the results were good and that the airline was profitable. However, he said the air transport business was a low margin one and that profitability was sensitive to small changes in many cost areas.