Airline to ask for up to EUR300m from the Cabinet

Aer Lingus will shortly approach the Government with a request for a cash injection of between €200-€300 million in order to complete its long-haul fleet deal with Boeing or Airbus.

The airline is currently in advanced negotiations with both manufacturers and a deal could be completed within four to eight weeks, it is understood.

Formal offers have been submitted by both companies and the funding question will soon become an urgent matter for the Cabinet. The airline met the Minister for Transport, Mr Cullen, on Friday and made him aware of the position.

The airline needs about 10 or 11 new aircraft to renew its long-haul fleet. It believes it can secure a good deal in the current environment with Boeing and Airbus locked in fierce competition to build up their order books, especially in Europe.

Boeing in particular is anxious to do a deal with one of the few long-haul, low-cost airlines in Europe. The US company wants Aer Lingus to become one of its launch customers for the new 7E7 aircraft.

It is understood the airline expects to lease half the new aircraft and purchase the others outright. Based on list prices, the total value of the deal would come to about $1.2 billion. But with half the planes leased and the bought aircraft coming on stream on a phased basis, the airline does not require that scale of funding.

However it will need between €200 and €300 million to make initial payments on the purchased planes and provide confidence to the manufacturers that Aer Lingus can meet all its commitments going forward.

The airline is due to complete its existing short-haul fleet renewal programme by the end of 2005, when its gearing will stand at about 40 per cent. But if the airline had to complete the long-haul deal without any fresh funds its gearing could rise to dangerous levels.

Seattle-based US manufacturer Boeing has talked to the airline about the new 7E7 which has a capacity of up to 275 seats. This aircraft is expected to enter service some time in 2008. Its great advantage is its long-range capability and fuel efficiency.

Airbus, which won the Aer Lingus short-haul contract two years ago, is believed to be offering a mix of A330s, A340s and the new A350. While the A350 will not be ready until 2009, the other aircraft are already available.

The majority of the Aer Lingus fleet is made up of Airbus aircraft, so it would not require a major shift for the airline to accommodate further Airbus planes.

The offerings from Boeing and Airbus would allow Aer Lingus for the first time to fly to destinations like South-East Asia, the Middle East and South Africa.

The Taoiseach, Mr Ahern, talked about Ireland's interests in the Middle East and South-East Asia last week during a trade visit. If the US-Ireland bilateral is revised in the next two years, the number of US destinations to which the airline can fly will also greatly increase.

The airline is expected to remain in contact with the Department of Transport about the long-haul deal in the weeks ahead.

The Government is essentially faced with two options: it can invest funds in the airline itself as an investor, but this is likely to be challenged in the European courts, most likely by rivals of Aer Lingus like Ryanair.

The alternative is to dilute its own stake in the airline (currently standing at just over 85 per cent) and allow new investors into the airline in exchange for an equity stake. This would give the airline access to new capital, but would leave the Government still holding some kind of stake in the company.

While the Taoiseach, Mr Ahern, recently ruled out a management buy-out, the company is pressing ahead with negotiations with Airbus and Boeing and will discuss the funding issue with the Government shortly. The Cabinet sub-committee, which is due to meet early next week, may also ask the airline to make a presentation on its funding requirements.