As the political dust settles on the Government's decision to sell a majority stake in Aer Lingus, its time to ask two questions. What does the future hold for Aer Lingus? And will the travelling public be better off?, writes Gerry Byrne
That Aer Lingus should be privatised is no longer in any doubt. Throughout Europe, governments are shedding shares in flag carrier airlines like confetti. All Aer Lingus's major competitors like Ryanair, British Airways and British Midlands are privately owned. Continued State ownership makes Aer Lingus a quaint anachronism.
One reason former chief executive Willie Walsh pushed so hard for privatisation was the need to renew the transatlantic fleet. But he also needed funds for expansion.
Aer Lingus made a € 107 million operating profit last year. Most of that will be used up in redundancy payments but the profit margin is indicative of the potential for even greater profits with staff numbers sharply reduced.
However, the company's balance sheet is such that it needs shareholder guarantees on any loans raised to expand the airline much further, or a fresh injection of shareholders' funds. Both may prove illegal under EU rules for state enterprises, which are forbidden from enjoying privileges not available to the private sector.
There are very few circumstances under which the Government may legitimately invest further funds in the airline - although fleet replacement costs would be one.
Curiously, although he made a resigning issue out of Government failure to address Aer Lingus's ownership structure and its impact on the airline's ability to raise capital for the future, neither Willie Walsh, nor his successor, have specified the airline's precise capital needs. Through a mixture of leasing and outright purchase, the airline has been replacing its older Boeing 737 aircraft with newer Airbus aircraft for UK and European routes, a process which appears well within its financial capacity.
However, it does not appear able to digest the bill for more expensive transatlantic aircraft and neither is there capacity to fund future expansion outside of current fleet numbers.
A banker casting his slide rule over the airline might take a rather jaundiced view of its prospects in its new guise as a low-cost airline and ask is it serious about what it is doing?
Despite reducing average fares from €82.52 to €79.70, passenger numbers grew by just 6.6 per cent last year, half Ryanair's passenger growth rate in the third quarter of 2004 alone. Indeed, in the full 12 months Ryanair expanded its passenger numbers by almost 47 per cent, 14 times the growth rate of the national carrier.
So, while it cut costs by some € 5.5 million overall, shed several hundred more workers at a cost of € 102 million, and chopped fares, Aer Lingus failed to capitalise on its achievements.
There were few new routes and of the new European routes it did launch most were in place of more marginal UK routes, which were dropped. Little extra capacity was added - yet arch-rival Ryanair added 18 new aircraft.
Instead of striking out for new shores, Aer Lingus has simply been treading water. While the Aer Lingus fleet remained more or less static in terms of the number of aircraft (around 32), Ryanair's fleet grew from 54 to 72 aircraft. What ultimately separates Aer Lingus from Ryanair is a lack of serious ambition. All of its routes either start or finish at Irish airports; it doesn't serve other city pairs as Ryanair does. There are no attempts to connect the UK to European countries, or such countries to each other. Willie Walshe did a good job in converting Aer Lingus's European division to a lower cost base but it still takes a fantastic leap of imagination to describe it as a low-cost airline in the Ryanair or Easyjet mould.
Almost all of the profit Aer Lingus made last year was spent on redundancy payments for hundreds of jobs it shed; yet the airline is still nowhere near Ryanair's level of low-cost efficiency.
Every Aer Lingus worker on average now processes 1,781 passengers per employee compared to 1,540 in 2003, a 15.6 per cent increase. It is nowhere near the sorts of passenger numbers processed by the average Ryanair employee who last year increased productivity by 21 per cent and now processes 10,000 passengers a year, 5.6 times more than at Aer Lingus.
Some 370 additional workers were let go last year by Aer Lingus. Yet the irony is that, were it to achieve even a modest fraction of Ryanair's growth, most of them would be needed back again.
But rapid growth costs money and its money the airline doesn't have, unlike Ryanair, which has access to billions in shareholders funds and is awash with spare cash. Unable to receive money from the State, Aer Lingus must turn to its meagre profits to pay the cost of redundancies. And it is likely that process will be repeated in the current year, instead of being leveraged to grow the fleet and launch new routes.
But released from dependence on the State for capital, Aer Lingus might face a more expansive future. With funds available for more aircraft, passenger numbers can be grown. Provided the airline's unions agree to handle much of that growth with existing staff numbers, layoffs may become a thing of the past and productivity should creep to more acceptable levels. More routes can be added and Irish passengers will benefit from increased choice.
Of course, all of this assumes that whoever controls a privatised Aer Lingus operates with a view to expanding its market share rather than timidly following in the State's overcautious footsteps. It also assumes that the Aer Lingus low fare approach genuinely grows the market by attracting new passengers into the air, rather than simply retaining existing ones by reducing the cost of their tickets, as may have been the case.
It also assumes that the airline remains as an independent entity and the fear has been often expressed by Government that a predator airline might buy Aer Lingus just to get a hold of its take-off and landing rights - called slots - at Heathrow, and convert them to its own use.
Heathrow slots are rare and valuable; despite a ban on their sale, they have changed hands on the grey market recently for as much as £4 million each. Aer Lingus controls some 44 slots per day in Heathrow (including take-offs and landings) and they could be worth more than €300 million, a sizeable proportion of the worth of the airline, and an attractive buy to any airline seeking to expand its presence in one of the world's busiest airports.
However, the alternative, leaving Aer Lingus in its present state, is too terrible to contemplate. Meeting tough competitive pressures by driving costs down through more redundancies is simply soaking up capital which could instead be funding expansion, not survival.
Dublin aviation writer Gerry Byrne is the author of Flight 427: Anatomy of an Air Disaster published by Springer-Verlag, New York