Support for Aer Lingus buy-out 'fading'

AER LINGUS has seriously damaged its chances of getting a green light from the Government to proceed with its proposed management buy-out (MBO).

Market sources argue managements' actions by jumping the gun on the MBO, and subsequent decisions, has virtually ruled out support for a management take over of the business.

Proposals to withdraw from the airlines' One World Alliance and to end short-haul cargo services will only fuel Government antagonism further, sources said. Government is due to take a decision on the future direction of Aer Lingus when a sub-committee, under Taoiseach Bertie Ahern meets in September. It is awaiting a report from bankers Goldman Sachsbefore it makes any moves on the airline's future.

Action by management from its premature announcement of an MBO have not helped their strategic plan in anyway, sources said yesterday.

On the sub-committee, Transport Minister Seamus Brennan is about the only support management has at this stage, with Minister John O'Donoghue anti and the Taoiseach Mr Ahern lukewarm toward either an MBO or a flotation of the group.

One source said given the actions of senior management the Government'sonly plan of action will be a full flotation if that is viable. Otherwise the airline will remain a State-owned business.

Meanwhile the airline has infuriated the Irish Exporters Association by refusing to reverse its decision to discontinue short-haul cargo operations.

Angry exporters have demanded action from the Minister for Transport, Seamus Brennan, and warn the decision has serious implications for a wide spectrum of Irish business.

It has serious implications for key electronics groups such as Dell and HP who ship vast quantities of product to Britain and Europe. It could also antagonise Tánaiste Mary Harney, who is pro the MBO, and leave the Aer Lingus management even more isolated.

Chief executive of the Irish Exporters' Association, John Whelan, said yesterday the decision would leave many companies in a particularly messy situation. Mr Whelan said it was vital the Department of Transport instructed Aer Lingus to release its cargo facilities to the private sector to ensure Irish business was not damaged in any way by the decision.

Aer Lingus says it intends to retain its transatlantic cargo service and its service to Germany, which together makes up 88% of its cargo business. It says the majority of other short haul traffic is now carried by road.

The airline also cited an average 60% reduction in its short-haul business-class passengers over the past three years as its reason for phasing out the service.

Over the next two months Aer Lingus will remove all booking restrictions on its short-haul routes to increase flexibility for passengers. Transatlantic routes will continue to offer business-class.

The loss of business-class will impact on the company's membership of the One World alliance. The membership allows Aer Lingus to sell tickets on seven partner airlines and so increase the amount of routes it can offer customers. These partners include British Airways and American Airways.