Aer Lingus needs �merger� as revenue falls 16%

AER Lingus must consider a merger to avoid becoming another Waterford Wedgwood as revenue plunged 16% in the first three months of the year.

Aviation analyst Joe Gill made this comment after Aer Lingus announced it was reviewing the size of its long and short-haul operations after passenger numbers fell 6.5% to just over two million in the three months to the end of March 2009. Short-haul numbers fell 5.7% and long haul dropped 12.5%.

Aer Lingus shares, which are down 62% this year, fell 19% to 56 cent yesterday, a fifth of what they were when Ryanair first made a bid for the airline in 2006.

Mr Gill of Bloxham Stockbrokers said Aer Lingus must urgently address its cost base if the value of its equity is to be protected from liquidation.

�Doing nothing is an insult to the brand�s legacy and a dereliction of responsibility by those in political, employee and board circles that have material influence on the company.

�Without firm leadership, Aer Lingus could become another Waterford Wedgwood that drifts on a wave of nostalgia into oblivion,� he said.

Average fares on short haul fell by 23.6% in March and by 25.7% on long haul.

The company�s net cash fell 9.2% to �593.6m as it paid out �80m to cover employee severance costs and a payment on an airplane.

Bloxham Stockbrokers expects net cash will decline to �336m at year end and fall a further �100m plus in 2010. Bloxham expects operating losses to exceed �120m this year and again in 2010.

Aer Lingus said it will review its long-term requirement for the long-haul capacity on order with Airbus together with any associated capital expenditure.

Aer Lingus chairman Colm Barrington said: �Against the backdrop of a severe deterioration in operating conditions, the board is taking the steps necessary to safeguard the long-term viability of the group.�

Mr Gill said Aer Lingus stakeholders need a large, well-financed, merger partner to facilitate change towards an operating platform that can survive very tough markets. It said merger partners could include Air France, Ryanair or British Airways, The airline should pull services to San Francisco, Washington and Orlando while retaining Boston, New York and Chicago, according to Bloxhams.

�Long-haul services should be focussed on Dublin, with fewer frequencies and Shannon long-haul should be closed over winter months,� he said.

It is understood, however, that Aer Lingus operations from Shannon to Boston and New York are performing well.

Aer Lingus also re-organised its management team, with deputy chief executive Niall Walsh being appointed chief operating officer. Chief financial officer, Sean Coyle was appointed head of short-haul operations and corporate planning director Stephen Kavanagh will take on the role of head of long-haul operations.

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