Aer Lingus close to decision on partner

Aer Lingus will submit its choice of preferred international partner for Government approval at the end of this month, after receiving formal proposals from seven international airlines.

None of these proposals has yet been ruled out by the Aer Lingus board, but informed sources still believe that British Airways or its partner in the Oneworld global alliance, American Airlines, are the two front-runners to link up with Aer Lingus.

Once the Minister for Public Enterprise, Ms O'Rourke, receives the final Aer Lingus report on an alliance at the end of the month, she will refer it to consultants before making a decision on whether to approve the proposal. At this stage, there are no indications of whether the approved international partner would subscribe for equity in Aer Lingus.

Aer Lingus chairman Mr Bernie Cahill emphasised yesterday that the negotiations so far had been with individual airlines, not with existing alliances such as Oneworld, the United Airlines-Lufthansa alliance Star, the Atlantic alliance, which includes Delta and Swissair, or the KLM-Northwest alliance.

Aer Lingus sources said forming a partnership with an airline which was already part of one of the existing four alliances did not mean that Aer Lingus would automatically become part of that alliance. Indeed, one of the major partners in the Star alliance has previously indicated that Star is virtually complete with no need for any new members.

The sources added, however, that being a partner of one of the major members of one of the existing alliances would result at the very least in "a friendly but not formalised relationship" with the other members and ideally an invitation to become a formal member of the alliance.

Aer Lingus has made it clear that it must become a member of one of the global airline alliances and has previously favoured a US partner into which it could feed its own passengers for onward flights and from which Aer Lingus could receive passengers for the Irish airline's transatlantic service.

The attraction of a US partner is that it gives Aer Lingus the freedom to expand its services in an eastward direction without competing with the US airline, although a link-up with American Airlines, for example, would undoubtedly preclude Aer Lingus from competing with American's partner in the Oneworld alliance, British Airways.

The need to be a member of one of the alliances, at least indirectly through a partnership with one of the bigger members of one of the alliances, has become more obvious.

The alliances, particularly Oneworld, have been marketing their services aggressively and most analysts believe small airlines like Aer Lingus will find it increasingly difficult to compete against the seamless global route networks, frequent flyer programmes, economies of scale and shared facilities such as business centres that will attract business customers to the global alliances.

Aer Lingus's financial strengths may be one factor in its favour when deciding on a partner. The airline has reported a 14 per cent rise in profits to £52.4 million(€66.5 million), although it has warned that its margins of 6 per cent are too low and that further cost savings are required.