Aer Lingus flight paths on way to market flotation

SOONER or later private investors will be able to get their hands on Aer Lingus shares.

All routes in the company's flight paths point clearly to a stock exchange float this year or in three to four years' time at the very least.

The end game for the process set in train by Aer Lingus chief executive Willie Walsh and executives Brian Dunne and Séamus Kearney, when they requested consent from the Department of Transport to allow them to develop "an investment proposal for the company," will certainly be the privatisation of Aer Lingus.

The Government may opt for an initial public offering (IPO) on the stock exchange of Aer Lingus shares. This would, according to Davy Stockbrokers analyst Stephen Furlong, generate the biggest return for the State. It might also satisfy the three Aer Lingus executives as they, too, would get their hands on a substantial portion of the company and unleash the shackles of state ownership.

Minister Séamus Brennan is examining the proposal from the Aer Lingus trio for permission to put together a management buyout (MBO) bid for the company. If he says yes, and they do buy the company, what next?

A venture capital company like 3i will finance the bulk of an MBO bid along with other investors who will want a clear exit strategy in place. At present, there appears to be just one credible way for the venture capital (VC) investors to make a profit an IPO of shares in Aer Lingus.

A trade sale to a large player like British Airways or Lufthansa is not an option until such time as the US and the EU sign off on an open-skies deal between the two unions.

If BA or Lufthansa bought Aer Lingus, then it would no longer be an Irish airline.

This would result in Aer Lingus automatically losing the crucial landing slots in the US which underpins its profitable transatlantic business.

MBOs funded by VC investors like to have their profit built in from the beginning by buying the company they target at a discount.

This may not be politically practical in Aer Lingus' case.

Mr Brennan will want his pound of flesh, so the proposed MBO might envisage the State remaining as a substantial stakeholder.

This would give the minister an each-way bet by being able to cash in like the rest when the IPO comes along but still getting cash up front.

The Government will not want an Esat scenario to develop, whereby a handful of individuals become multi-millionaires as a direct result of getting a state asset on the cheap, and so the minister might retain a sizeable chunk of the company.

The itinerary is clear for those at the top of Aer Lingus: get on the MBO share option bus, ready the company for an IPO take-off and hope the share price goes sky-high when the company hits the stock exchange.