The Government should explore the idea of retaining a "golden share" in Aer Lingus following any sale to investors, the Goldman Sachs report has said.
A "golden share" allows a substantial shareholder, usually a Government, to veto changes in the articles of association of a company. Normally it means blocking a complete takeover of a partially privatised company.
It says the State might consider retaining a 20 to 25 per cent stake in the airline and consequently prevent a complete takeover.
"Under company law, the compulsory acquisition rules following a takeover offer can only be achieved if the acquiror achieves 80 per cent acceptance levels," it points out. It says this means any takeover offer would require the consent of the Government. It says this arrangement is relatively common in Europe.
Given the importance of Aer Lingus, it says, some level of State ownership may be needed to ensure the stablility of the airline in the medium term. "Retention of some control will allow the State to retain significant influence on the future direction and the ownership of the company," it states.
It says there could be other ways for the Government to retain some influence over the company, including insisting on "specific contractual covenants" by the new investors.
Under these covenants the airline would have to adhere to minimumn service levels on specific routes.
The use of the Aer Lingus brand might also be covered by one of the covenants, it suggests.
"A less onerous form of agreement might consist of an obligation to consult the State before any departure from policy, with the ultimate decision being for the board of the company on commercial grounds," it says.
It warns, however, that demanding certain requirements from a privatised Aer Lingus could impact on the valuation of the airline during a sale. It says enforcing conditions on the airline would become more difficult with time.
It says the downside of a golden share is the Government would be put under "unwanted pressure" to exercise its influence at certain times.
The report warns that while a "golden share" might allow the Government to achieve certain objectives, "at first sight" it might be a violation of the EU principle of freedom of capital.
It adds on several occasions the European Court of Justice has found that "golden shares" unreasonably restrict the rights of other investors in privatised companies.
Such issues are beyond the scope of the report, but the Government might "sound out" the European Commission on the issue.
Whatever option the Government ultimately decides on must result in fresh capital for the airline, it states. "A change in the status quo, without ensuring an adequate capital base for the company, would not be advisable," it claims.
