Flying McGann

WHEN Aer Lingus chief executive Gary McGann announces the company's 1995 results next week, the group's 6,000 employees will have a particularly keen interest in the proceedings. This year, for the first time, 10 per cent of the company's profit before tax and exceptional items will be distributed to staff at the airline and its maintenance subsidiary TEAM.

Mr McGann will not discuss the results but says that the semi-state is "making progress". in its last published accounts for the 21 months to the end of December 1994, Aer Lingus made a trading profit of £10.4 million, which became a loss of £129 million after exceptional items.

Last year's performance improved upon the previous period and the trend is positive, according to Mr McGann. This year's figures will indicate interesting progress, says Mr McGann.

Although progress has been made, there are still major obstacles to be overcome. "There is too much significant work to do to even remotely draw breath," says Mr McGann.

He is also quick to point out that while Aer Lingus is performing better, the climate for the aviation industry worldwide is good. "If you can't make money in the current cycle, then you can't make money at all," he says.

The airline is also benefiting from lower interest rates, which are underpinning the economic buoyancy and lessening its own interest bill. After two years of disposals the company's level of debt has been dramatically reduced.

Mr McGann argues that the key challenge for airlines that have experienced "the horrors" of the early 1990s is that they have to make enough money in the good times to sustain them in the bad. In spite of the improved performance which will be revealed next week Aer Lingus has yet to meet that challenge, he argues.

"I don't think we're making anything like enough money for long-term sustainable viability. I think we're moving in the right direction but we're certainly not there." The trend is positive, says Mr McGann, but the big challenge is to make sufficient funds now to cover the impact of a falling market.

Originally Aer Lingus and others in the industry were of the opinion that a market fall would come at the end of the decade but increasingly aviation analysts are arguing that the end of the boom could come in late 1997 or early 1998.

Mr McGann says that the troubled aircraft maintenance subsidiary TEAM was in line with its five-year development plan meaning the company made a loss of about £9.5 million last year, compared to £27.9 million during the 21-month period to the end of 1994.

"The only way that TEAM can survive is to be the lowest cost, highest quality fastest turn-time operator," says Mr McGann, He argues that cutting costs and restructuring at the present time should help TEAM cope with the next downturn in the airline industry.

"In a downturn, the lowest cost highest quality supplier is the one that survives best. If TEAM achieves its plan . . . then it's going to be in a lot better shape that a lot of other companies. But we're talking about '97 or '98 before we know whether we've made it or not."

Mr McGann believes that the publication of the 1995 results marks the beginning of a new era for the company. The Cahill plan has now been Implemented, work practises have changed dramatically, all non-core businesses have been sold, and - according to the chief executive - the group has turned the corner.

"All the restructuring programme has done for Aer Lingus is given it a legitimate right to participate in business again on its own merit," says Mr McGann. The airline is now "capitalised properly" and "has both the right and the responsibility to be commercially successful on the back of an equity base that is sensible in terms of the level of equity that is injected into it" The successful disposal of all non-core business was one of the key achievements in implementing the Cahill plan, according to Mr McGann. "We ensured that the shareholder got maximum value from them in what conceivably was a fire sale in people's minds."

Disposals over the last two years are thought to have raised more than £220 million in cash. The largest element in the disposal was the sale of the Copthorne Hotel Chain, which was worth £220 million to the airline in the form of cash and debts taken over by the new owner CDL.

Last August's sale of the Copthorne chain reduced Aer Lingus' debt from £365 million to £145 million, and further reductions were achieved through the final £50 million tranche of State funding and a number of other disposals. All of Aer Lingus' routes are now "making a contribution to the bottom line" but Mr McGann admits that some routes are not profitable when all costs are taken into consideration. New routes will not be started unless they are profitable while existing routes which cannot be made profitable routes' will be discontinued.

As reported earlier this month Aer Lingus is about to sign a deal with the independent airline CityJet to operate two routes on its behalf: Dublin-Brussels and Dublin-Manchester-Zurich.

The agreement is "a tactical move" rather than any "part of a grand strategy for route expansion," according to Mr McGann. "We've got to find ways of being capable of making money on thinner routes or on routes that have a difficult mix of travelling public than the heavier business routes."

To this end the company has also developed a new Aer Lingus company along the lines of the Express concepts operated by a number of carriers. The new sub-brand which will carry the Aer Lingus name in some form, will offer lower cost services on certain existing routes and also target new routes.

A new code-sharing agreement with the US airline Delta should enable Aer Lingus to spread business more evenly on the highly competitive trans-Atlantlc routes, according to Mr McGann. The Delta deal, which will be formally unveiled today, will bring more passengers in the low-peak months and also a higher proportion of business travellers all year round.

"While everybody in the tourist industry would want us to absolutely fill the leisure side of the aircraft it won't pay the wages, it is not sufficient on its own, it is a very thin business. While we give some business away in the summer we get two strong players selling in the winter period."

If the profit-sharing scheme had been in operation for the 21 months to the end of last year, Aer Lingus employees would have received just over £173 each. With the restructuring fully implemented, TEAM on target with its development plan, and the airline business enjoying a huge upswing, next Wednesday's results should bring a lucrative windfall to the airline's employees.