Aer Lingus makes a profit in good year for airlines

AER Lingus needs to almost double the operating profit of £53.2 million it has reported for 1995, the chief executive, Mr Gary McGann, said yesterday.

"We need to be looking at double digit profit margins", said Mr McGann. The group must improve its return on sales through further cost reductions and increasing revenue, he said.

The 1995 operating margin was less than 7 per cent of turnover - significantly less than that being achieved by successful airlines in the favourable periods of the industry cycle.

Profit before tax, exceptional items and payments under the new employee share participation came to £32.8 million compared with £3.4 million in the previous year Net profit after exceptional charges was £15.1 million compared with a net loss in 1994 of £123.6 million. The exceptional loss for 1995 was £11.7 million compared with £127.2 million for 1994.

Exceptional losses last year included a loss of £16.4 million on the sale of Copthorne Hotels the sale price was lower than the book value of the hotels in the company's accounts - and a write down of £12.2 million in the value of the Fokker aircraft fleet. Some of these losses were offset by writebacks of exceptional provisions in 1994, including £11.7 million on the estimates Aer Lingus made for losses on the lease of two Boeing 767s.

The main factors behind the proved performance in 1995 were an extra £10 million operating profits from the basic business of carrying passengers and cargo to £43.6 million and a steep reduction in losses at TEAM Aer Lingus and other maintenance activities to £3.4 million from £16.3 million in 1994.

The disposal of non core assets realised £234 million in 1995, including £219 million from Copthorne Hotels.

The money was used to reduce group debt, so the group paid nearly £10 million less in interest charges last year. With the £50 million injection of State equity, the debt/equity ratio has fallen from 353 per cent to 26 per cent. Profits were also reduced by the Employee Share Participation Scheme agreed between the company the unions and the Irish Government as sole shareholder.

Under the scheme, all employees satisfying certain service criteria are entitled to share equally in 10 per cent of the group profit before tax and exceptional items. This concession cost £3.3 million in 1995.

Mr McGann said Aer Lingus had made good progress through a combination of revenue generation and cost reduction. However, conditions in the airline business in 1995 were particularly favourable and this would not always be the case.

"We are very conscious of the cyclical nature of the business," Mr McGann said.

In future years, he added, Aer Lingus would have to grow its profits substantially as there would be no more State equity available and no further non core assets to sell.

Asked if Aer Lingus might return to the shareholder for more equity as Air France, Iberia and Sabena had done, Mr McGann replied: "I happen to believe it would be in the worst interests of Aer Lingus to get more State capital."

Aer Lingus would have to make its way by growing its markets and improving its yield per passenger, he said.

The Minister for Transport, Energy and Communications, Mr Lowry, welcomed the Aer Lingus results. However, he cautioned that it would be necessary for the airline to continue to cut costs and to grow prudently in accordance with strict commercial criteria.