Massive bill to follow on stalled Aer Lingus float

The Government faces a bill running into millions of pounds for advisers' fees if it calls off the stalled Aer Lingus flotation. The Department of Public Enterprise has already run up bills in excess of £720,000 (€914,210), mostly for legal work on the proposed public offering.

The figure does not include the fees of the two banks advising the Government - AIB and Schroeder Salomon Smith Barney. The Department has confirmed that the advisers will be entitled to unspecified fees if, as seems likely, the much delayed Initial Public Offering is called off in the autumn. The fees will reflect the work carried out by the banks and be linked to what they might have earned if the flotation had proceeded.

When Eircom floated in 1999, AIB earned €28.4 million, when along with Merrill Lynch it shared 2 per cent of the IPO proceeds.

A Public Enterprise spokeswoman said the fees to be paid to the two banks would be open to negotiation if the IPO is cancelled. The Department had taken legal advice that even though the flotation was well and truly stalled, it did not have to pay compensation fees to AIB and SSSB until it was formally abandoned. "They were hired to carry out a specific task with no firm deadline," the spokesperson said.

AIB and SSSB are the global coordinators and lead managers for the share issue and have also hired a number of other banks to help in the flotation. These include Credit Suisse First Boston and Davy Stockbrokers.

The Department said its view was that payments to CSFB and Davy in the event of a cancellation was an issue for those institutions and the global coordinators.

The Taoiseach has stated that at present the flotation is the only option on the table, although the Minister for Public Enterprise, Ms O'Rourke, has mooted a trade sale. A firm decision is expected in the autumn following a review of the options put forward to the Minister by AIB and SSSB earlier in the summer. Going ahead with an IPO looks all but impossible, as both market conditions and the airline's financial prospects have deteriorated drastically since the flotation was first planned in 1999.

Aer Lingus is set to lose more than €25 million this year compared to operating profits of €80 million for the year to December 2000. The fall is due to the downturn in the US economy and the impact of foot-and-mouth disease. As a consequence of the US downtown, the airline is expected to reduce capacity on a number of transatlantic routes and is undergoing a review aimed at a return to profitability.

Aer Lingus has also seen its wage bill soar after a round of big pay settlements after a series of industrial relations disputes.

The situation has not been helped by the loss in May of the airline's chief executive, Mr Michael Foley, after allegations of sexual harassment against him were upheld by an internal investigation.

Market sentiment towards airlines has also cooled as a series of European and US carriers have reported poor figures and warned of tough trading conditions. The only airline that appears to be bucking the trend is Ryanair, the low cost carrier, which competes with Aer Lingus on many routes to the UK and Europe.

If Aer Lingus was to go to the stock market it is likely to be valued at around €250 million - compared to the figure of €700 proposed when the flotation was first mooted.