The future of Aer Lingus remains uncertain, according to a leading economist and expert on the aviation industry. Mr Colm McCarthy of DKM Economic Consultants told a major conference on aviation policy in Dublin yesterday that despite a good recent performance, "there are grounds for expecting underperformance in the years ahead."
Virtually all of "the walking wounded amongst the world's airlines have earned profits during the boom," Mr McCarthy said. But it was not clear if Aer Lingus had "addressed decisively its problems of excessive cost."
He felt that privatisation offered the best prospects for its long-term competitiveness. "Irish State companies which face private competition are caught in an unusual bind," he said. "The board and management may want to reduce costs but the State may side with the trade unions, for straightforward political reasons. It may be necessary to privatise the company in order to empower the management and board to address the company's cost problems.
"The strategic alliance issue is also rendered more complicated by State ownership. Prospective alliance partners may feel uncomfortable with the State as partner, particularly if the State is ambivalent about cost reduction."
However SIPTU's chief economist, Mr Paul Sweeney, disputed Mr McCarthy's assessment of the company and of semi-state companies in general. Last year semistate companies made profits of £460 million for the Exchequer, he said.
Unions in the semi-state sector were not afraid of change. In Aer Rianta and Aer Lingus, unions and management had been amongst the first in the State to go the partnership route and had done so with great success, he added.
While Aer Rianta continued to build successfully on experience, Mr Sweeney said, Aer Lingus "is moving away from it and in some areas it is moving towards confrontation." The partnership approach in Aer Lingus "now appears to be on a stop/go basis.
"They do have a joint business review group but it meets very irregularly and management doesn't seem to be terribly interested in the views of trade unions or staff. It is not good enough that there is only partnership and open dialogue at times of crisis. It must be ongoing."
While Mr McCarthy warned that there could be no further bailing out of Aer Lingus from Government and EU funds, Mr Sweeney argued that EU competition law did not rule out further State investment.
"EU law does not prevent any government or shareholder from investing in a company that passes what they call `the Market Investor Principle.' This is quite a simple test. It is to assess whether a private investor would invest in an enterprise and, if they would, then it passes the test.
"If you look at Aer Lingus's balance sheet you will see a very healthy company. In fact Aer Lingus is one of the top 25 most profitable airlines in the world."
Mr McCarthy said that the loss of duty-free sales, the prospect of VAT being imposed on travel, and fuel taxes to help reduce hydrocarbon emissions would all pose serious financial problems for the airline. The Government's failure to address the Shannon stopover issue was also making it difficult for Aer Lingus to develop Dublin as a hub for long-haul services between Europe and North America.
With declining operating margins, the need to replace its fleet and the likely onset of an industry downturn, Mr McCarthy said, "determined action is now required to pre-empt a repeat of the 1993 financial difficulties."
The president of the Irish Airline Pilots' Association, Mr Dermot Moran, said the Government had to look at Aer Lingus's status. If the company was to go down the privatisation route then the staff would have to be fully involved in the process.