AER LINGUS is to seek shareholder approval to restructure its balance sheet in such a way that it would enhance its ability to pay a meaningful dividend in the future.
The airline plans to hold an extraordinary general meeting on November 4th in Dublin to seek shareholder approval to cancel up to €500 million of its non-distributable reserves.
This, in turn, would create a reserve of the same value from which Aer Lingus could return capital to shareholders.
Under Irish company law, any dividends on ordinary shares can only be paid from distributable reserves.
Likewise, any purchase or redemption of ordinary shares can only be made from the same source.
At the end of December 2010, Aer Lingus Group plc, a holding company used for the investment in the entity that runs the airline, had distributable reserves of €57.35 million.
In effect, Aer Lingus would not be able to pay a dividend above this level in spite of having net cash of €358 million.
The distributable reserves can only be added to by way of a dividend from the trading subsidiary, Aer Lingus Ltd.
However, this entity is unable to pay a dividend to the holding company because of its accumulated realised losses.
At December 31st, 2010, these losses stood at a figure of €210.43 million.
They arose from trading losses and exceptional costs relating to various restructuring programmes over the years.
In a circular to shareholders, Aer Lingus’s board said that it was in its best interests to allow the company have “greater flexibility” to return capital to investors.
If approved by shareholders, Aer Lingus will seek court approval for the capital reduction before the end of this year.
The move comes at a time when Ryanair, Aer Lingus’s biggest shareholder, is pressing it to pay a dividend of €110 million.
Aer Lingus has not paid a dividend since its flotation in 2006.
The document states that the board of the airline is “not currently contemplating” a dividend payment.
It added that it was “in the best interests” of the company to consider such a payment when there was a “more durable recovery” and “consequent earnings visibility”.
The motion will require the support of 75 per cent of Aer Lingus shareholders at the extraordinary general meeting.