Economics: Call me a "right-wing economist" if you like, but it seems to me that a fair reading of the Goldman Sachs report on Aer Lingus is that the status quo is not an option. If the airline wants to continue on its route towards being a low-cost carrier, then it needs extra capital.
If the Government, as the shareholder, wants it to go another route then it needs to decide this - and tell the board and management that they need to change tack.
Unfortunately, the Government has made no decision either way and appears in no hurry to do so. In a weekend interview, junior minister Ivor Callely said there was "room for pause" in the Government's consideration on the future of the airline. It is clear that Willie Walsh and his management team feared that when the Government says "pause" in relation to a state company, it is not talking a few days.
Take Aer Rianta, for example (and there must have been times in recent years when successive ministers wished that somebody would). In April 1999, a report from Lehman Brothers and Andersen Consulting on the future of the airport company said it needed extra capital and should be floated on the markets. A subsequent report for the Government from Warburg Dillon Read recommended that it sell up to 49 per cent on the markets.
In May 2000, Aer Rianta managers were reported to be "increasingly frustrated" at the lack of progress on the flotation plans. By the end of 2000, weak stockmarkets and the fall in Eircom shares had led Aer Rianta bosses to concede that the float was off. No formal decision was announced, but reports said that political opposition and concerns in Shannon and Cork had also delayed any decision.
In early 2003 the break-up option first surfaced - an 18-month long guerrilla war followed. The Government finally moved, though a final sign-off on the basis of business plans from the airports will not be made until next year. And, as Michael O'Leary never tires of pointing out, a decision on the second terminal at Dublin Airport is still awaited 18 months after a report to Government on the issue.
Slagging the Government for inaction is, of course, also an easy option. And nobody disputes that the issues involved are complex and difficult - not to mention politically charged. However all the signals were that the Aer Lingus issue was going to be parked and that the Government was nervous of the political and union reaction. Extraordinarily, the Cabinet sub-committee on the issue has not even met since the Goldman Sachs report was issued. Perversely, the resignation of the three amigos may now have pushed the Government into an earlier response. Minister Cullen appeared to indicate that they recognised the need to make a decision. Perhaps they will give the go-ahead for seeking private funding. But even then how quickly will they move?
The core of the issue is not any attempt by Mr Walsh's team to make a mint from the airline. It is about a vision of the airline. The Walsh strategy is to turn Aer Lingus into a low-cost carrier, developing into new markets and in particular expanding into longer-haul markets. If Aer Lingus wants to expand as a low-cost carrier then, Goldman concludes, it needs fresh funding to provide money for fleet enhancement while maintaining a low debt level. If instead it wants to follow a more traditional airline capital structure with high debt levels, then it will not be able to compete and grow in the low-cost market.
Goldmans provides the Government with a list of alternatives, if it does want to back the strategy of competing and growing as a low-cost carrier. It was not asked to make a firm recommendation. And no solution is perfect, in that in selling off a stake in the airline, the Government inevitably loses some influence in issues which are strategically important, such as the provision of trans-Atlantic services or the future of the airline's slots in Heathrow.
It is clear that Goldman feels an IPO - an offering of the airline's shares on the stockmarket - is the best option, with the state retaining a minority stake, probably in the 20 to 25 per cent region. Of course an investment bank recommending an IPO comes as little surprise. However the analysis is well-argued. And it leaves it to the Government to decide.
It is quite open to the Government to reject the Goldman analysis. It is, after all, the shareholder in the airline. It may well have legitimate strategic concerns. However it has to realise that just ignoring a problem does not make it go away. And the risk is that the airline heads into another period of turbulence.
If it does, then the Government will find it difficult to provide fresh equity in a crisis. Under EU rules it can provide equity on the same basis as other investors, but could not step in to rescue the airline in a crisis.
The danger now is that the very strategic issues which the Government says it wants to protect will be damaged by interminable delay. Already the management team has left. Unless they reverse their decision, any future investor would want to see a track record from a new team before committing funds.
Aer Lingus had been brought back into a period of strong profitability. It had options for the future and was set on a clear path, with a good chance that future commercial success could have been combined with the State's strategic interests. Now the future is unclear - not because the Government made the wrong decision, but because it made no decision at all.
