TEAM players signal approach of endgame

The depth of Aer Lingus's pockets will ultimately decide the fate of its aircraft maintenance wing TEAM. As one source close to the complex negotiations between management and unions said this week: money solves everything.

The key to resolving the problem are the letters of guarantee which 1,200 of the 1,600 TEAM workers hold. These allow for TEAM workers to return to Aer Lingus if anything happens the aircraft maintenance company and they oblige the State airline to retain at least a 51 per cent share of it.

The unions point out that these letters cannot be negotiated as some overall deal to be voted on by employees. They must be negotiated individually.

Earlier this week, Aer Lingus offered to buy out the letters for £25 million. This equates to around £15,600 a person, although it must be seen as just an opening figure.

However, one source believes Aer Lingus will be left with a rump of TEAM workers who will not surrender their letters at any price. This could have the effect of forcing up the price Aer Lingus will have to pay the others.

Aer Lingus executives firmly believe now is the time to sell TEAM. Five parties are interested. One, BF Goodrich wants to take a majority stake. TEAM has cost Aer Lingus dearly. Whatever deal is done the state airline will have ploughed in £130 million.

The fear in Aer Lingus is that the industry, which is cyclical, will go into a nose-dive in the next year to 18 months. Suitors are sniffing around. Now seems like a good time to sell.

Consolidation is also taking place in the maintenance industry, led partly by GE which has been very active on acquisitions during the past five years. The trend has also been for airlines to out-source maintenance contracts.

Aer Lingus argues that as the industry consolidates, TEAM will be left behind and it cannot afford to invest more money in it. It also argues that there is no guarantee that TEAM can either compete as it does at present or hold onto the contracts it has.

As the industry consolidates, it argues that current business may go elsewhere. Alternatively, if TEAM can get an alliance partner, this partner could actually bring more business to the company in off-peak periods - or so the Aer Lingus argument goes.

But there is a real concern among workers that in a downturn TEAM could suffer the ultimate fate during a recession: closure. "There is a fear that Ireland could be seen as just a little outpost if the downturn, which some predict will happen in 2000, occurs," says one union source.

Five parties are interested in taking various stakes in TEAM, but Aer Lingus would like to sell it in its entirety. "It is the biggest millstone around Aer Lingus's neck," says one source.

Although perhaps a little unkind, TEAM has posed its fair share of problems. When it was founded in 1991, its then chief executive, Mr Terry MacManus, predicted that the company's turnover would have increased to £150 million a year and the workforce to at least 2,400 by 1996.

Today the situation is starkly different: it employs 1,600 staff, has cost Aer Lingus £130 million and has a turnover of £85 million. It may make £1 million, even £2 million operating profit by 1999. Or it may just break even. Industrial disputes, bad management, and a downturn in the aviation business, due to recession and the Gulf War, combined to take their toll on what is acknowledged as a company with considerable skills.

Looking at TEAM's track record does not make encouraging reading. In the first couple of years of its existence, turnover was in excess of £100 million. Operating profits of £6 million were posted. Turnover fell to £80 million in 1994.

The airline business was in recession. In 1995 and 1996, TEAM lost £5 million each year with turnover running at around £80 million.

Senior sources say TEAM's problems were also exacerbated by those of Aer Lingus which was also suffering from the fall-out of the recession. When TEAM was established it was envisaged that maintaining the Aer Lingus fleet would contribute around £70 million to TEAM. Within 18 months this figure was just £30 million.

In 1994, Aer Lingus replaced some of its fleet and newer aircraft need less maintenance.

So why would anybody want to buy TEAM if it is so beset by problems? TEAM is an acronym for The Experts in Aircraft Maintenance. Even its critics acknowledge that TEAM has built up a strong level of expertise in certain areas. There is a shortage of such expertise in the industry.

Although much remains to be done, TEAM has managed to right many of its faults. Turnaround times are better, staff rostering has improved and the cost base has been reduced.

"They have some very good staff with excellent technical expertise," says one airline executive. The aircraft maintenance business is extremely competitive. "People want top quality, but they also demand a competitive price," says one source.

BF Goodrich is tipped as the front runner and wants to buy out TEAM. Last night a company spokesman said Goodrich "doesn't comment on rumour".

Nevertheless Goodrich which, it is said, is prepared to pay £25 million for TEAM, has a substantial aircraft maintenance division of its own. Aircraft maintenance accounts for about 25 per cent of its aerospace division which has a $2 billion annual turnover. It employs around 2,000 people. Goodrich clients include Federal Express, United Airlines, Soutwest Airlines and Alaska Airlines.

Last month, it reported a 56 per cent increase in profit to $32.5 million for the third quarter of the year. Sales were $585.9 million, compared with $528.2 million in the same period last year.

Aer Lingus believes potential suitors will just move on if the situation is allowed to drag and wants heads of agreements signed by Christmas.

Selling off TEAM is understood to pose no ideological problems for the Public Enterprise Minister Ms Mary O'Rourke, or the coalition partners. But a key issue in Ms O'Rourke's mind will be the welfare of the employees.

It is also an issue which will dominate the unions' agenda. Squaring that particular circle, will prove no easy - or cheap - task.