Aer Lingus, which yesterday announced operating profits up 10 per cent to £46.1 million, expects to report to Government by the end of August on its plans for a strategic alliance.

Although it will not specify a preferred partner, the company is expected to proceed shortly afterwards on negotiating an alliance with interested parties. The company admitted yesterday that consolidation in the worldwide aviation industry is beginning to affect parts of its business, notably its ground handling operations in Heathrow, where it has had to battle to win new contracts to replace several it has lost when other airlines formed strategic alliances.

Aer Lingus also said yesterday that it was including an exceptional write-off of £89.2 million, the bulk of it associated with the sale of TEAM, as part of its strategy to get out of the aircraft maintenance business. This effectively turns the operating profit into a net loss of £45.9 million loss for last year. Aer Lingus executives will meet representatives from FLS Industries, which wants to buy TEAM, next week to finalise sale details. About 80 per cent of TEAM employees have accepted the £54.5 million offer to buy out their letters of guarantee and the deadline has been extended until next Wednesday.

Aer Lingus chairman, Mr Bernie Cahill said yesterday that although it was up to the Government, a Telecom Eireann-type model might suit the airline. This would entail a partner buying into the company and a percentage of the company being publicly floated.

Mr Cahill warned that a strategic alliance was not a panacea in itself, but said the airline business was consolidating rapidly and the issue was a matter of some urgency. Deputy chief executive, Mr Larry Stanley said there were four major global alliances: STAR, which had eight carriers, including United Airlines and Lufthansa; American Airlines and British Airways; Delta, which includes Swissair; and the KLM-Northwest alliance.

Asked what Aer Lingus had to offer a strategic partner, he cited a good brand and a full service carrier which provided interlining, or onward passenger traffic. Mr Stanley said 20 per cent, or more than one million passengers per annum, travelled onwards after using Aer Lingus. The group could provide valuable feeder traffic to other carriers, he said.

Mr Cahill said he was not worried that Ryanair would carry five million passengers this year, almost as much as the 5.3 million passengers Aer Lingus carried in 1997. He said Aer Lingus would never be a low-cost airline. It would focus on quality. Mr Stanley added that there had been a 19 per cent increase in business traffic on the airline and that its market share had increased on all routes, including the British provincial routes, on which Ryanair also competed.

The company was performing well this year, he said, and it anticipated an increase in profits.

Meanwhile, Aer Lingus said last night that it had got agreement from Lufthansa to offer discounted fares to employees who transfer from TEAM to FLS. The loss of the discounted fares was said to be one of the last stumbling blocks to acceptance by some employees.