CIE's chief executive, Mr Michael McDonnell, has retired from the troubled transport company.

A severance and pension package he agreed last week with its executive chairman, Dr John Lynch, is understood to be worth more than £420,000 (€533,290).

Mr McDonnell never enjoyed a close working relationship with the Minister for Public Enterprise, Ms O'Rourke.

His deal involved settlement of a High Court action Mr McDonnell took against CIE Group last year to raise his salary to about £190,000 from about £100,000.

The former chief executive has also decided to abandon a libel action against the Sunday Business Post. It is understood CIE will pay his outstanding legal costs for this action, which has been pending since 1998.

Mr McDonnell declined to comment when contacted at his home yesterday.

His departing package includes a lump sum worth about £230,000 and a severance gratuity of £193,000, it is understood.

That gratuity was the equivalent of a year's salary under the terms of the contract Mr McDonnell signed with CIE's former chairman, Mr Brian Joyce, before he resigned last March.

CIE disputed the contact because it was not sanctioned by the Department of Public Enterprise after Mr Joyce resigned. That prompted Mr McDonnell's action against CIE, which was adjourned last December until May.

In the interim, Mr McDonnell entered the talks which led to his departure from the company yesterday.

It is understood his pension will be calculated using the lower salary, although the overall pension package will reflect elements of the enhanced salary.

Ms O'Rourke's appointment last year of Dr Lynch was interpreted by many as a sign that she was unhappy with the chief executive.

Dr Lynch was made executive chairman, a position generally held at companies with no chief executive.

In a statement yesterday, CIE said Mr McDonnell faced the major challenge of "past underinvestment" in the State's public transport services.

It added: "Subsequently, following the major policy shift in favour of public transport, he was responsible for the delivery of the current Government-approved public transport programme under the National Development Plan."

Still, CIE's ability to deliver on the Government's £2.2 billion investment in public transport has been questioned by Ms O'Rourke.

In addition, tense industrial relations continue to dog the company and strikes last year stalled services on the Dublin Bus and Iarnrod Eireann networks.

Mr McDonnell supported Mr Joyce's attempts to secure autonomy for CIE in its management of industrial relations. Mr Joyce claimed Ms O'Rourke interfered unduly in CIE's relations with its unions when he resigned.

For her part, Ms O'Rourke was particularly unhappy when a Government report found a signalling contract worth £14 million ultimately cost £25-£40 million.

There have also been suggestions that the Government was unhappy with a contract CIE signed with Esat, allowing the telecoms firm run cabling along the rail network.

A career civil servant, who once assistant secretary in the then Department of Transport, Mr McDonnell was appointed chief executive in May 1995 by the then Minister for Public Enterprise, Mr Michael Lowry.