Cliff Taylor: Deal or no deal – the bizarre debate on Aer Lingus

The debate on whether the Government should sell its 25 per cent stake in Aer Lingus is bizarre. We have had weeks of argument founded on the premise – as one observer put it to me – that you can sell shares in a company you used to own and tell the person who buys them how to run it. This weekend, on the initiative of the “Aer Lingus Seven” – TDs opposed to the deal, many from North Dublin – we will hear more of the same at the Labour Party conference.

The Government could end up looking really stupid. If Willie Walsh decides he can’t get the Government on board but still wants to control the airline, then IAG could buy up the rest of the shares, call all the shots and the Government would be sitting there with no guarantees on anything. If he walks away, the growth opportunities presented by the bid are lost and the airline’s future shareholding structure is very uncertain.

All the dithering is happening because Labour TDs are worried about being outflanked by Sinn Féin, the Socialist Party and left Independents, on one side, but are afraid not to say “no” straight up, in case the trade unions eventually indicate support. And because the Government now seems scared to make a tough decision on anything, in case someone might be upset.

A lot of what is wrong is caught by one phrase that we keep on hearing – should the Government “sell” Aer Lingus? We did that in 2006, when the previous government decided to float the shares on the market. We now own only 25 per cent, but to listen to the debate you would think the Government and the department were still able to tell Aer Lingus where to fly to and what it should be serving passengers for breakfast.

One of the most frustrating things is the negative tone of the discussion. It is full of talk about “protecting” and “safeguarding” things. Why not take a more positive view? Aer Lingus has done well in recent years. What is now the best way forward, for the company and the country?

Slot guarantees

The IAG bid has very significant advantages from a defensive point of view for the Government, the employees and the country. It offers guarantees on the slots for a period and commitments on routes out of Ireland. As part of IAG, Aer Lingus would have much more financial fire-power in renewing its fleet and support if the notoriously cyclical industry hits a downturn. It removes a lot of risk from the airline’s future.

It also brings the prospect of growth and more jobs. IAG is willing to give commitments on new routes to North America. The transatlantic fleet will be expanded, and could double from 10 to 20 aircraft in the years ahead. It has a plan to boost flight connections from Ireland, via the IAG network and its link-up with American Airlines. Of course there are uncertainties – there always are in business – but this plan can create a significant number of new jobs directly. More flights mean more cabin crew and support staff. It can also boost connectivity significantly, benefiting the wider economy.

Willie Walsh wants to develop Dublin as a hub for flights to North America, ferrying in passengers from the north of England and Scotland, in particular.

Surely, even on the mythical doorsteps of north Dublin, the TDs will hear the message that more jobs at the airport would be a good thing.

Firm deal

International business is a rough game. The Government now has something that IAG wants, and can get a price in return. The cash on offer is fair and takes into account the Heathrow slots. The various guarantees on slots and jobs are something which Walsh is offering because he wants full control. The Government should screw whatever it can out of him, but it needs to recognise its exposure, too.

IAG has kept its cards very close to its chest since the Government statement on Wednesday, which rejected the bid as it now stood. Presenting IAG results, Walsh said he still wanted to do the deal and would talk to the Government “in due course”.

If the Government says no in the near future, then IAG might walk away. Aer Lingus would plough on but, with Ryanair likely to be a forced seller, its future shareholding structure would be unclear and financial investors would be nervous.

However, as Walsh appeared to hint with his “in due course” comment, this one still has a way to run. IAG could launch a formal bid before the Government says “yes” or “no”. If Ryanair and the other investors say they would sell, as expected, then IAG would have commitments from a majority of shareholders and the Government would have to call it. Presuming Walsh is still offering the guarantees on slots and routes – and perhaps concedes a last-minute additional “sweetener” to Ministers – the Government could take it or run the risk that it would end up as a minority shareholder with no guarantees on anything.

At any stage, IAG could decide to take the guarantees off the table completely and bid for the rest of the shares, resigning itself to the presence of the Government as a minority presence. If that happened, IAG would have control and the Government would be left with its shares, but nothing else.

No doubt the Cabinet would like Willie Walsh to make the decision for them and walk away. I doubt he will, not without a fight anyway.