Varadkar insists there will be no sale of Aer Lingus stake until the price is right

The Government has cooled on proposals to sell the State's 25 per cent Aer Lingus stake and is not likely to pursue any such deal unless a bidder meets conditions that the Minister responsible believes would not be attractive to a commercial player.

Minister for Transport, Tourism and Sport Leo Varadkar says he does not favour selling the holding "at the moment", stressing that the Government is neither pursuing nor likely to do so during its lifetime.

A possible disposal of the shareholding was part of the Government's State asset sale programme announced early last year by Varadkar's Cabinet colleague, Brendan Howlin, along with other businesses, such as Bord Gáis Energy, a number of ESB plants and Coillte's harvesting rights.

Since then there has been some speculation that Etihad, which already owns 3 per cent, is interested in buying the Government’s shares.

Its chief executive, James Hogan, has signalled several times that the Middle Eastern carrier would be prepared to bid for it.

It also emerged recently that Aer Lingus has engaged in inconclusive talks about a possible merger or link up with another airline.

Its biggest rival, Ryanair, which holds 29.8 per cent of the company, has unsuccessfully attempted to buy it outright on three occasions.

Right conditions
Varadkar points out that the Government has consistently said that it would sell the stake at the right time and at the right price and under the right conditions. "And more and more I think about what that means, I find it very hard to see when the right time is, what the right conditions are and what the right price would be.

"What I don't want to do is say that I'm ruling it out, because a situation could arise where somebody comes along, offers the Government a huge amount of money for the stake and makes commitments to Ireland that we know they will honour in the long term, but do I see that happening? I don't know. Why would any buyer want to do that anyway?"

The Minister acknowledges that during his time in Government, his views on privatisation generally have changed. He argues that small states such as the Republic should be cautious, as what works in large economies such as the US or Germany may not necessarily apply here.

Events during Ryanair's last bid for Aer Lingus opened his eyes to that, he says. In an effort to allay any objections on competition grounds, Ryanair agreed that if it were successful, it would transfer Aer Lingus services from Dublin, Cork and Shannon to Heathrow to the International Airlines Group (IAG) subsidiary, British Airways.

“I would have seen, in the past, IAG as being a natural fit for Aer Lingus, it would have fitted in very well with IAG and would have been able to retain its brand and its identity and yet would have been part of a consolidated airline group,” he says.

"But when they showed their hand, their major interest in Aer Lingus was using Aer Lingus to feed Heathrow. It wasn't direct connections from Ireland to other parts of Europe. "

Long-term proposal
The same concern would apply to any long-term proposal to privatise the Dublin Airport Authority (DAA). Any such proposal would be a non-runner during the lifetime of this Government, as the company that owns Dublin and Cork has net debts of about €600 million.

“I wouldn’t have any kind of principled objection to it in the longer term, except that for a small country to have an important infrastructural asset owned by a foreign player would be something I would be concerned about,” Varadkar says.

“We’ve seen in the banking sector the extent to which foreign-owned banks just lost interest in Ireland and headed for the hills when it didn’t suit them any more.”

For the next couple of years, he wants the DAA to focus on consolidation, paying down its debt, repairing its balance sheet, increasing earnings and profits and paying a dividend, either next year or in 2015.

Returns to State
When he arrived in office in early 2011, only one State company under his remit, Dublin Port, was doing this. Now that business, along with the port of Cork, Galway port, Aer Lingus and the Irish Aviation Authority all make returns to their shareholder: the State.

Both the DAA and Aer Lingus are still wrestling with the problems presented by their joint pension plan, the IASS, the Irish Aviation Superannuation Scheme, which, at the last estimate, had a deficit of €750 million.

Last May, after six months of deliberations, the Labour Court proposed that the airline put €100 million and the airport company about €50 million into a new plan.

It looked like a solution to a problem that both have been trying solve for several years was close.

Shareholder vote
Last summer, the Aer Lingus chief executive, Christoph Mueller, said he hoped to put the proposal to a vote of shareholders by October.

That has not happened and efforts to draw a line under the issue, which has brought staff at both companies to the brink of industrial action several times in the past, now appear to have stalled.

Varadkar points out that since he came into office, he has been told that a resolution was just months away. He says the fact that it has not happened is frustrating – “2½ years later, it’s still not resolved yet. The real tragedy is that the delay in resolving it has actually made it harder to resolve.”

Despite the problems, Varadkar argues that recently, the aviation sector is making good strides. Aer Lingus has gone from a company that regularly had to rely on subvention from the State to keep going to a profitable business that is now paying the taxpayer a dividend.

He says the Dublin Airport Authority’s numbers are up 4 per cent this year, which means that the rate of growth in passenger numbers at its airports is four times faster than the economy.

When Varadkar arrived in office, he was advised that aviation simply went up and down with the economy and there was little that could be done about it. “That’s not true,” he says.

The most recent development has been the budget pledge to drop the €3 travel tax from next April, something for which airlines had been agitating since it was introduced in 2009.

The move was part of the Fine Gael election manifesto, but the Government held off, as airlines wanted its abolition married to a cut in airport charges. The Minister says that he was not willing to try and influence State companies' commercial decisions.

Airline expansion
What happened this time around, he believes, is that airlines were on the verge of expanding anyway and were willing to make commitments to increase passenger numbers without any other strings attached.

At this point, Ryanair has said that it will bring in an extra one million passengers annually from next year. So far it has announced expansions at Shannon and Knock that will make up 380,000 of this.

At the same time, Aer Lingus and its regional partner, Aer Arann, have also unveiled plans for growth, although those are less directly connected to the tax move.

Ryanair has yet to announce that it has cut a deal with the DAA in relation to Dublin and Cork. “We’re hoping that they will do that next,” he says.