Aer Lingus: Sell or bust

national | miscellaneous | opinion/analysis Thursday October 09, 2003 21:17 by bigbadbusinessboy b4pt at animail dot net

With Seamus Brennan due to present Aer Lingus' arguments for privitisation to the cabinet shortly it may be interesting to look back over the recent history of the company.

Since the early 1990s Aer Lingus has been grooming and preening itself in order to present the best face to corporate suitors. Since this time there has been sell-offs, redundancies, rationalisations, natural wastage and an almost unlimited number of consultants reports. These restructuring have been accompanied by trade-offs to the formerly powerful group of unions which had controlled every aspect of life in the company.
There was an employee share ownership scheme where productivity increases were traded off for company equity. There was another share ownership scheme where concessions on privitisation were traded for union ownership of a block of shares (these two deals formed the basis for the Eircom unions 15% share of the privitised company).These schemes only added to the discontent within Aer Lingus as the shares managed to drop significantly in value even before the scheme was fully up and running, then with privitisation postponed any possibility of trading in the shares became a distant dream. Another bit of paper which Aer Lingus employees ended up holding were the "letters of comfort" provided to TEAM Aer Lingus employees during the selloff to FLS and which turned out to be quite useful for wiping your arse.

A number of years into Aer lingus' "turbulent financial situation" a new chief executive, Willie Walsh, was brought in to set the company straight again and ensure that the privitisation of this "jewel in the crown of Irish semi-states" would proceed in a smooth, rewarding manner.
"Slick Wille" took to the task with some relish, formulating a strategy which would see Aer Lingus on the auction block, looking fit and trim, sometime in 2002/3. That was the plan. There was a further restrucuring of the company, debt was refinanced with aircraft sold off and leased back, "inefficient" sectors of the company were outsourced and shut down (cleaning and IT went quietly, catering and baggage handling have proven stickier) and a ban was put on recruitment of ground staff with temporary staff being used to fill the gaps during busy periods. Early retirment and redundancy packages were widely available and proved very popular with staff numbers dropping quite sharply.

The events of September 11 2001 were used to great effect within the aviation industry with government supports to Aer Lingus being used to finance one last swingeing round of cost cutting and redundancies, which proved so effective that Aer Lingus actually peaked early posting profits in early 2002 which undermined greatly the poor mouth strategy being used to force cutbacks and changes of work practice amongst flight crews, Aer Lingus' last real bedrock of union strenght and good working conditions.

With rising political support for privitisation, a looming global economic crisis and the end of the important summer tourist season Aer Lingus is now seeking to break the power of the flight attendants and soon no doubt the pilots unions to complete the makeover and restructuring of Aer Lingus into a low fares airline well suited to be "merged" with one of the global giants (possibly British Airways / American Airlines once their merger is finally approved).

This project is being made still more urgent by the fact that the new, sexy Aer Lingus is unlikely to be able to sustain the current levels of profit and indeed would be unlikely to survive even a minor readjustment in the aviation industry. Following a decade of restructuring Aer Lingus finds itself in the position of having almost no assets (aircraft which it had owned were sold and leased back, new aircraft are leased and most of its airport facilities are rented or leased from Aer Rianta) and a very expensive workforce (most remaining employees are many years from retirement but have been with Aer Lingus for many years and thus are highly salaried and costly to make redundant). These issues are compounded by the fact that Aer Lingus has no ancilliary business left and thus no alternative sources of income should there be drop in the demand for air travel currently holding them aloft.

Indeed having removed the shamrock from their livery it could be argued that from Aer Lingus' own viewpoint their brand recognition has no value, thus raising the prospect that the only asset remaining of any interest to a prospective buyer would be historic landing rights at Heathrow and JFK. In this situation then Aer Lingus would certainly be doomed as the only reason for anyone to buy the company is to asset strip landing rights and an airline without landing rights won't be going anywhere.

Over the last decade then Aer Lingus has been moved from being a large, well diversified, publically owned Irish aviation industry (for such it was) to being a small low fares airline operating in a small market and owned by a fractuious group of unions, banks and the government. Given the current state of the company and the airline industry globally then it becomes obvious that the issue is not whether Aer Lingus will cease to exist and if the employees will be made redundant but rather who will own the company when it goes bankrupt and who will pick up the tab for the workers redundancy payments, the irish taxpayer or an global corporation.