ALH debacle damaged reputation of Aer Lingus

The collapse of the Aer Lingus Holidays (ALH) fraud trial on the 35th day of hearings brings to an end a long-running and sorry saga in the state airline's history.

The ALH debacle first came to light in 1990 when it emerged that the company's accounts had been systematically falsified over a five-year period to hide trading losses of £7.3 million and property losses of £2.8 million.

Aer Lingus had set up ALH in 1983 to group together its five foreign holiday companies, Blueskies, Cara, Enterprise, Stephen's Green Travel and Sunbound.

Mr Cathal Mullan, who was chairman of Blueskies before the consolidation and later became Aer Lingus chief executive, was appointed chairman of the new firm. Mr Malachi Faughnan was seconded from Aer Lingus to become chief executive while Mr Frank Cryan from Sunbound became assistant chief executive.

The management team also included Mr Peter Noone who was financial controller and Mr Peter Keely as assistant financial controller.

None of the senior management was on the ALH board which, in addition to Mr Mullan, included Aer Lingus executives Mr Louis Slater, Mr Michael Delaney, Mr Dick Creagh and Mr Bob Lee who was company secretary. Mr Des Flynn acted as solicitor to the company.

In the late 1980s, ALH was selling 40,000 to 55,000 holiday packages per annum and had turnover ranging from about £12 million to £16.5 million.

But within seven years of its foundation the company, which has become one of the top three tour operators in the country, was ordered out of the business by the Minister for Tourism and Transport after the falsification of the accounts was discovered.

Alarm bells first started to ring at Aer Lingus in the summer of 1989 when the subsidiary company was unable to settle its account for aircraft chartered from its parent company, a position seemingly at odds with its monthly management accounts.

This led to an internal inquiry followed by an examination by the company's auditors at that time, Stokes Kennedy Crowley. After the appointment in September, 1989, of a new financial controller, Mr Paul D'Alton, to Aer Lingus and the departure of Mr Faughnan and Mr Noone, accountants Conroy O'Neill were asked to review and examine the company's accounting systems. Their findings cast doubts over the accounts of previous years and Aer Lingus called in accountants Craig Gardner to carry out a full investigation.

Following receipt of their report, the Minister for Transport and Tourism Mr Seamus Brennan referred the case to the Garda Fraud Squad for further investigation. The focus of the inquiries was on how millions of pounds borrowed to acquire property in Spain and the Canary Islands was used.

In addition to ALH's losses of £10.1 million, Aer Lingus was forced to make provision for £7.2 million to cover potential future losses - although it is believed that not all of this was eventually needed. But financial losses were not the only price.

The debacle damaged the airline's reputation by calling into question its management and accounting systems. It also gave rise to the long-running legal proceedings which collapsed yesterday, with the taxpayer left to foot the legal bill.