Mannion flies in the face of opposition

Fall in profits comes as airline's chief executive faces pressure from Ryanair and trade unions, writes Ciarán Hancock , Business…

Fall in profits comes as airline's chief executive faces pressure from Ryanair and trade unions, writes Ciarán Hancock, Business Affairs Correspondent

Sitting in the Merrion Hotel yesterday buttering a small scone, Aer Lingus chief executive Dermot Mannion had the look of a man tired from the pressure of the past four weeks.

Mr Mannion is under fire on a number of fronts, not the ideal backdrop for the publication of the airline's interim results.

Those results showed that Aer Lingus's passenger numbers rose by 6 per cent to 4.4 million in the six months to the end of June, while revenues increased by 13 per cent to €574 million.

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However, increased costs, particularly from fuel, meant that Aer Lingus posted an operating profit of €2.6 million, which was down from the €10.6 million figure for the same period of 2006.

"Overall, this was a solid performance and a good platform for the rest of the year," Mr Mannion said.

The vast bulk of Aer Lingus's profit is made in the second half of the year and Mr Mannion has indicated the airline will hit its target for 2007 after a busy summer season. Davy Stockbrokers has pencilled in a full-year operating profit of €77 million.

The challenges facing Mr Mannion, however, continue to mount. On Tuesday, he will reveal the company's intentions on Ryanair's recent request to hold an extraordinary general meeting (egm) of shareholders to force a U-turn on the decision to axe the Shannon-Heathrow route and switch the service to a new base in Belfast. Aer Lingus's legal advisers are believed to be preparing the ground on how the company can best put its case to shareholders for a rejection of Ryanair's motions.

They are also thought to be examining the potential competition issues that might arise were Ryanair's motions to be successful.

Mr Mannion has made public his concerns that Ryanair's moves could be anti-competitive and it is understood that the Competition Authority has been made aware of its concerns.

Mr Mannion would love nothing more than for the European Commission to have a fresh look at whether Ryanair should be allowed to hold such a large stake in one of its biggest rivals.

Ryanair boss Michael O'Leary has suggested that the Shannon-Heathrow route could be restored, with Aer Lingus pulling plans to launch a service from Dublin to Gatwick airport in London from October and switching those flights to Belfast.

Ryanair has also indicated it would pull back from some of its plans to add capacity on its three Shannon-to-London services if Aer Lingus reverses its decision.

Mr Mannion is adamant that there will be no going back on Shannon-Heathrow and the decision to switch the slots to Belfast. "That decision has been made," he said bluntly yesterday.

He was equally non-committal about a date for the egm. "We will announce our intentions in relation to the egm on Tuesday," he said.

Ryanair owns 29.4 per cent of Aer Lingus and, with the Government, staff, pilots and Denis O'Brien owning close to 50 per cent between them, Mr Mannion has lamented the lack of liquidity in the stock.

"When we talk to investors they say they would like to see more liquidity in the stock," he explains. "But I don't have a view right now how that is going to be achieved."

Ronan Reid, joint head of Dolmen Stockbrokers, thinks Aer Lingus is doing well, but wouldn't buy its stock. "I think it's probably worth €2.60-€2.70, but who's going to buy it off me in the future?" he asks. "The results are fine but the stock is just dead in the water at present."

Aer Lingus's share price closed in Dublin yesterday at €2.42, having traded as high as €2.98 in the aftermath of Ryanair's bold takeover move. The obvious seller is the Government, which owns 25 per cent, but Mr Mannion said no discussions have taken place on this issue.

The recent uproar over Shannon shows that the Government is virtually powerless to stop Aer Lingus using its valuable Heathrow slots as it chooses.

It is a passive shareholder that Mr Mannion would probably like to replace with a more active investor.

"They [the Government] should consider selling their stake, but it would be a political hot potato," Mr Reid said.

Mr Mannion's other great challenge is to push through PCI-07, the company's plan to radically alter work practices and pay structures in Ireland. This plan, aimed at achieving savings of €20 million a year, is deadlocked in spite of the involvement of the National Implementation Body, the Labour Court and the Labour Relations Commission (LRC).

Mr Mannion sought to push the proposals through by August 1st, but failed in that plan.

The Impact union then threatened a two-day strike if Aer Lingus hired pilots for its new Belfast base on different terms to what their counterparts in the Republic receive.

In the end, the pilots pulled back from the strike action, but Aer Lingus still took a €3.5 million hit to its bottom line from the disruption it caused to the company. That dispute is due before the LRC today.

Mr Mannion is adamant that PCI-07 will be implemented this year. "We have pretty much exhausted all of the machinery of the State that's available to us and there's nowhere else to go," he said.

So what next? "Implement. That's the target. No one said it would be easy. Eventually, you get to a point where you exhaust all possibilities and then you move on."

It's fighting talk but it doesn't sit well with Michael Halpenny, the national industrial secretary of Siptu. "Any changes are going to have to be implemented through negotiations and agreement," Mr Halpenny said, adding that some of his members stand to lose up to €4,500 a year in take-home pay. "We will defend our members in the best way we can. Confrontation hasn't done wonders for the company so far."

Mr Mannion will not say how the company plans to break the impasse between the two sides, but forcing through PCI-07 will clearly put him on a direct collision course with the unions.

The next couple of months could make or break Dermot Mannion as Aer Lingus's chief executive. If he defeats Ryanair's challenge at the egm, sees off the Shannon controversy and delivers PCI-07, he will enter 2008 in a strong position.

Failure to deliver on one of these, however, could prove fatal. One analyst summed it up succinctly: "If I were Dermot Mannion, I'd fasten my seat belt, adopt the brace position and hope to God for a safe landing."