Government could put provisos on State airline sale

The Government is examining means of retaining the Aer Lingus brand and its slots at Heathrow Airport in London if it decides to proceed with the sale of the State-owned airline, it has emerged.

With the Cabinet inching towards a decision at the end of next month, the possibility of securing a commitment from any new owners of Aer Lingus to use Shannon Airport for trans-Atlantic services is also under examination.

Such issues are understood to be the subject of discussions between senior officials and Goldman Sachs, the investment bank hired by the Cabinet sub-committee which is assessing the ownership options for Aer Lingus.

Chaired by the Taoiseach, Mr Ahern, the group was set up after three senior Aer Lingus managers led by the chief executive, Mr Willie Walsh, asked for permission to develop a bid for the company.

The Minister for Transport, Mr Brennan, is understood to be in favour of selling the airline. He is also in favour of the principle of allowing Mr Walsh developing a bid, provided the management team take their place in the queue of potential bidders.

But as the strategic options are assessed, some doubt has surfaced as to whether the Government will push ahead with a sale at this time.

Senior business sources said yesterday that the recent expression of support by Mr Ahern for the State ownership of the Great Southern Hotel group might be significant.

Mr Ahern could just as easily support the continued State ownership of Aer Lingus if he decided the time was not right for privatisation, they said.

In addition, political sources conceded that the Government's poor performance in the elections last June would be a factor in the Cabinet decision on Aer Lingus. In this context, there may be a reluctance to pursue a sale at the same time as 1,300 jobs in Aer Lingus are at risk.

However, the Government may not want to be seen to be avoiding the issues confronting the airline, in particular its need for investment. The alternative political view suggests the Government should not be paralysed by the election result and would risk further punishment from voters by not taking difficult decisions.

On the branding of the airline, it is understood the Government does not want to create a situation where the Aer Lingus marque disappears overnight after a sale. Citing the elimination of the Eircell brand after the Vodafone takeover, informed sources said the Aer Lingus brand had a long-standing "emotional" resonance and should be protected in any sale.

The sources also said attempts were being made at present to establish where the ownership of the slots in Heathrow resided. Noting that the slots did not appear on the balance sheet of Aer Lingus, they said the Government wanted to ensure the slots would not be used by any buyer of Aer Lingus to access destinations other than Ireland.

The central issue surrounding the use of Shannon by a privatised Aer Lingus concerned the continued provision of a trans-Atlantic service from the mid-west airport.

It is understood the Cabinet group will publish a paper by Goldman Sachs on the strategic options for the airline. Sources said that publication would help to "create a climate" for a Government decision before the end of September.

Due on August 31st, the paper will set out the issues facing the Government and Aer Lingus in the event of the airline being sold or retained by the State. It is likely to come down heavily in favour of privatisation.

In addition to Mr Brennan, the sale option is favoured by the Tánaiste, Ms Harney, and the outgoing Minister for Finance, Mr McCreevy, who will remain on the sub-committee until the Cabinet reshuffle at the end of next month. However, it remains unclear whether Mr Ahern would be willing to back such a process.

Informed sources said the Taoiseach would be anxious that a sale could proceed only with the agreement of unions.

In such a scenario, the sources said the political emphasis would shift to the development of a process that could be seen to be fully transparent at every stage.

Aer Lingus is currently resisting the transfer of a 14.9 per cent stake in the airline to its workforce until two outstanding industrial relations issues are resolved.

However, sources believe an eventual transfer could provide a powerful incentive to go along with the sale.