Aer Lingus set for low-key flotation

THE flotation of Aer Lingus is firmly on the agenda with the company aiming to have the process complete by early summer.

Compared with the Eircom flotation this will be relatively low-key.

Eircom raised nearly €6 billion for the State and cost ordinary punters dear.

But Eircom employees past and present are about €1bn better off.

Others to do well from the group were Independent Newspaper boss Tony O’Reilly, Hungarian billionaire George Soros, and the financial institutions. AIB took about €100 million out of the process as adviser to the State while other financial institutions also took a slice.

Ordinary investors lost at least one-third of their money and those who hung in have seen the value of their initial investment cut almost in half.

This time there will be no bonanza for the State.

Aer Lingus is expected to be valued at roughly €1bn when it comes to market, and of that about €600m will be swallowed up in buying aircraft and shoring up the pension fund.

About €200m is needed to fill the pension hole with €400m required to be invested in new aircraft.

By the time the process is put to bed, the State will do well to get anything back.

It is also expected to hold on to 25% of the equity as a ‘golden share’, which ensures some form of security for the economy.

Aer Lingus is the only Irish airline providing long- haul flights and access to the US and the rest of the world beyond Europe is more critical than ever. By holding on to 25% of the company the State is ensuring the airline cannot be taken out in a hostile bid by another airline wanting to compete with Ryanair on the short-haul European routes.

How well the company will do as a quoted entity will be determined by its profitability.

Results published this week show the group is still struggling.

It made operating profits of over €72m, but they were well down on the 2004 figure of €107m.

However, the group contained costs, which rose by just €10.8m, while it had to absorb a fuel increase of €33m during the year.

Overall, this sector is not a given choice for investors. Few airlines currently make any sort of decent money and the rest are being hit by rising costs.

Ryanair stands out as a highly successful short-haul operator. It has dwarfed Aer Lingus from a standing start and taught the airline many lessons in the process.

Former Aer Lingus chief executive Willie Walsh took Ryanair as his model when he started to reform the airline, the ultimate compliment to the low-cost carrier.

Then of course Ryanair used South West Airlines in the US as its working model, proving there is nothing wrong in copying a successful formula.

Current chief executive Dermot Mannion tried to jumpstart the Aer Lingus flotation earlier in the week when he called on the Government to begin the process without further delay.

Aer Lingus has been straining for some time to get a listing in order to get on with transforming the group into a successful and profitable business.

Getting the flotation money may solve its short-term cash problems, but getting the kind of results required to keep investors satisfied will be a challenge the company hasn’t faced previously.

Investors will not be duped a second time, and the process will have to be very carefully handled if the group is to realise its aims.

Already the unions are up in arms warning the Government it will not have pay and conditions undermined in a new plc regime.

This process has only begun and will require a lot of deft touches if the flotation is to be achieved in a manner that is satisfactory to all concerned.