Pensions issue hangs heavy on airline’s future

Aer Lingus’s future ownership structure could depend as much on the resolution of the proposed takeover of BMI by British Airways owner IAG as it does on the resolution of its €700 million pension deficit.

A successful conclusion of IAG’s BMI deal would give the group — which also owns Spanish carrier Iberia — 56 more slots at Heathrow Airport and would cast doubt over the long-term need of Aer Lingus’s BA partnership.

Aer Lingus chief Christoph Mueller said there are still too many questions to be answered before it is known how Aer Lingus might be affected by such a deal. However, he added that if more slots became available at Heathrow, Aer Lingus would be interested in acquiring some.

Either way, the outcome of that consolidation effort could result in a slightly differently valued Aer Lingus.

Mr Mueller added that Aer Lingus continues to be “a valuable and profitable business”, with rising fuel costs the single biggest challenge to its balance sheet strength. Mr Mueller — who has overseen a degree of recovery at Aer Lingus since taking over from Dermot Mannion in 2009 — was in generally upbeat form, yesterday, concerning the airline’s future. He said management was hopeful of a positive outcome of its pension deficit issue.

“We’re optimistic, otherwise we wouldn’t be engaging with the LRC [Labour Relations Commission],” he said, adding the problem is between the pension scheme trustees and staff, rather than management and staff and that any industrial action would be damaging to the company.

Any danger of Ryanair — a 29.8% shareholder in Aer Lingus — launching legal action over any threat of Aer Lingus investing in the deficit now seems remote, however, with Mr Mueller saying such an investment will not happen. “We’re not allowed to do that,” he said.

With regard to the sale of the Government’s 25% stake in the airline, he said that a placement of the shares — rather than a trade sale, which most commentators agree would constitute a significant loss on the State’s original investment — would have no negative effect on the share price.

He said it could be just one of several options for the Government to consider and that management had witnessed strong demand from the investment community. Also, a trade sale is seen as increasingly difficult, as no buyer is likely to want to inherit such a large pension hole.

Commentators have suggested the likes of IAG and Etihad are too busy with other projects to look at a 25% stake in Aer Lingus just now.

However, on the subject of a trade sale, Mr Mueller said it would need to be made not just on value grounds for the State, but also to a suitor who would not represent a negative impact on Aer Lingus’s partnerships and who would maintain its links to and from Ireland.

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