Airline to argue alliance is vital

Aer Lingus is to point to the transatlantic market as offering the main potential for growth and argue that forming a strategic alliance with a major airline grouping is vital for its future in a document to be presented to the Minister for Public Enterprise, Ms O'Rourke, today.

The document is expected to argue that whatever airline alliance Aer Lingus links up with must include a strong US airline to allow it to fully exploit the transatlantic market.

The document on strategic alliance options will strongly put the case for Aer Lingus to form such a partnership, a recommendation likely to find favour with the Minister. It is also expected to say that funds for further investment could be met by selling some company equity to a joint venture partner or by floating some of its shares on the stock market.

One option would be to form an alliance involving a partner taking an equity stake in Aer Lingus and then float the shares, as happened at Telecom Eireann. With international airlines increasingly operating in alliances and funnelling passengers towards each other, entering such an partnership is the only option for Aer Lingus, the airline will argue. Going it alone would leave it vulnerable, it believes.

Transatlantic business - which has grown by 70 per cent over five years - is seen as offering the most potential. Growth here could come through developing new routes, feeding in customers from other airports to Dublin and Shannon for transatlantic flights and channelling passengers into onwards services from US airports, both within the US and to locations such as Australia and New Zealand.

A US strategic alliance partner would only be given US regulatory clearance if Ireland pursued an "open skies" policy. This would mean removing the rule that carriers flying to the US must operate the same number of flights from Shannon as they do from Dublin, although Aer Lingus will argue that Shannon could still grow if this happened.

While the report will not outline a favoured form of alliance, one involving an overseas partner or partner taking an equity stake in Aer Lingus - as opposed to just agreeing to co-operate - would provide funds to invest in fleet replacement.

Among the likely alliance partners are the STAR alliance, involving United Airlines and Lufthansa and the new British Airways/American Airlines alliance, which has still to receive full regulatory clearance.