Aer Lingus, the Irish flag carrier, has ruled out a quick sale of the government’s one-quarter stake in the airline despite European Union pressure for a deal to ease the heavily-indebted nation’s finances.
An Irish government report in June recommended selling the national airline along with ports and power stations as part of plans to raise €5bn (£4.4bn, $7.2bn) to repair Ireland’s accounts.
Andrew Macfarlane, Aer Lingus’ chief financial officer, said he would be “surprised if a deal was to happen in the current year”. “The likely proceeds would be fairly small compared with the government’s financial problems and it’s hard to see who would be the buyer.”
Ryanair, which is keen to purchase the airline, holds a near 30 per cent share in Aer Lingus, the legacy of two hostile takeover attempts in 2006 and 2008, which were flatly rejected by the Irish government and European regulators as anticompetitive.
The Office for Fair Trading has recently said it would again challenge Ryanair over its shareholding.
The Irish government has pledged to keep at least two airlines crossing the channel to protect tourist numbers: 55 per cent of Aer Lingus’s revenues are derived from customers travelling to Ireland.
Joe Gill, analyst at Bloxham Securities, said: “The Irish government needs reassurances about the strategic links provided by Aer Lingus to Ireland so a quick sale of its 25 per cent stake is unlikely.”
There are other obstacles to a government sell-off, not least a fractious relationship with the unions, which disrupted flights for a month and cost the airline €15m in the first half of this year. The group reported an operating loss of €27.8m for the first half of 2011, up from €19m a year ago, as a result of the conflict, which involved a dispute over staff rostering changes.
Mr Macfarlane acknowledged that the airline faced the threat of either legal action or further confrontation with employees as it sought to resolve a €400m pension deficit. Trustees have until the end of this year to propose a solution, which is likely to include a cut to benefits or an increase in contributions from the 5,000 employees still paying into the 15,000-member fund. Aer Lingus has 3,000 members of staff but the scheme also covers other employers at Dublin Airport. “If trustees ask staff to increase contributions we may find ourselves in line for trouble,” said Mr Macfarlane.
Despite this, Aer Lingus said strong bookings for the second half of 2011 meant its full-year profits would be better than expected and the airline was on track to achieve €80m of cost savings by the end of the year.
Aer Lingus has recently pulled back from the low-cost airline business model and increased average fares, a strategy that paid off with an 8.4 per cent increase in yield per passenger compared with a year ago and despite a 1 per cent fall in passenger numbers.
● FT Comment
Aer Lingus’s share price has fallen 46 per cent since the start of the year as confidence was dented by the industrial action and doubts over its growth potential. But the stock rose more than 9 per cent on Wednesday to €0.645 as investors endorsed the management’s strategy, which has stabilised cash levels in a ropey economy. Despite the pension deficit issues, the shares, which trade on 9.7 times earnings for 2011, versus 12 times for the EU airline sector, are ready to fly.
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