TEAM Aer Lingus cannot secure a viable future as a stand-alone operation without a minimum cash injection of £100 million, according to industry experts.
Like the airline operations business, the aircraft maintenance industry is consolidating, driven by competition and the need to cut costs. While several airlines have their own, separate, maintenance facilities, many airlines now contract out their maintenance work. This is especially true of the private carriers - such as Ryanair and easyJet - and increasingly true of national flag carriers.
The reasons are simple: many operators, faced with increasing competition from private operators with lower overheads, are anxious to cut costs wherever possible, while still maintaining strict safety standards.
For many airlines it does not make economic sense to retain a full, and costly maintenance structure, with employees who will have little to do for several months during the off-peak season. Therefore, many seek work to fill the down time. TEAM does this, servicing not only the Aer Lingus fleet, but its client base includes Virgin and UPS.
Industry sources say airlines are increasingly seeking to sub-contract out maintenance work to companies who can provide what amounts to virtually a full service.
TEAM carries out aircraft maintenance and component overhaul as well as providing what is known as technical services. However, where both companies differ is that they have different product lines. Their capability on aircraft types differ. Sources say FLS has become a more service-orientated company in recent years, aiming to provide the fuller range of services which airline operators are increasingly looking for.
Sources say if TEAM was to establish itself as a world player - in the face of increasing consolidation among larger companies - it would need a minimum investment of £100 million. Some sources have put it at as much as £250 million. This would include investment in providing extra facilities and retooling and buying in more equipment to offer a wider range of services. There is no way Aer Lingus can afford this money, a point made by senior management and reiterated in the Dail by the Minister for Public Enterprise, Mrs O'Rourke, who said TEAM could not survive on its own.
The EU would also step in if it was thought that Aer Lingus - whose shareholder is the Government - was effectively subsidising the company through investing in an operation that was losing money.
TEAM has cost Aer Lingus around £100 million since it was established in 1991. It emerged this week that the subsidiary will lose £1.5 million in 1997. This is a small amount. The problem is that TEAM's performance has improved because of the buoyancy in the travel industry over the past couple of years, but its cost base has not, according to airline sources. It is thus vulnerable as the industry moves into another downturn.
FLS has a stated aim: to become the largest independent third party aircraft maintenance company in Europe. TEAM can help it do that, as there would be considerable synergies between the two companies.
TEAM has an important client list which would be very attractive to FLS. In addition TEAM has a strong brand name in the business and highly skilled staff.
It is understood that FLS is considerably short of staff at present and is embarking on a major intake of apprentices as well as recruiting engineers from all over Europe.
That said, it is a safe bet that FLS will take a hard look at staff levels in TEAM if the deal is finally agreed. TEAM has 1,550 staff, while the FLS complement is currently 1,200 across its aircraft maintenance division.
Aer Lingus management will brief FLS executives today on the current situation. Whether FLS is prepared to wait around until Aer Lingus manages to push a deal through is another. Some airline sources said last night that the initial rejection of the deal will certainly have scared FLS.
One source said, however, that FLS is seeking extra capacity - something which TEAM has - and this is in short supply around Europe. "FLS order books are full," one source said, " they need the facility to take on more work."
However, David Learmont, editor of Flight International magazine disagreed. He said there are plenty of smaller aircraft maintenance companies for sale. Like others, he thought that FLS would take stock and wait for a week or two before deciding whether to walk away.