Preliminary deal on TEAM sale expected

Aer Lingus is expected to sign heads of agreement this week on a deal to sell its aircraft maintenance subsidiary, TEAM

Aer Lingus is expected to sign heads of agreement this week on a deal to sell its aircraft maintenance subsidiary, TEAM. As intense negotiations continued over the weekend between Aer Lingus and up to four potential purchasers, sources said a preliminary agreement could be announced as early as today. However, most observers do not expect an announcement until later in the week.

Two US companies, BF Goodrich and Allied Signals, are understood to be the main contenders as the bid process nears completion. After heads of agreement are signed, the potential bidder and Aer Lingus will move into the final phase of intense negotiations. This will include a due diligence examination of the TEAM operation by the potential buyer which could lead to a revision in the original price offered. Between the due diligence negotiations and the final negotiations on precise terms and conditions, the completion of the deal will take about 90 days from the time the heads of agreement are signed.

Crucial to the completion of a deal will be the resolution of all outstanding industrial relations problems at TEAM. The key issue is the letters of comfort held by 1,200 of the 1,600 TEAM employees.

These letters were provided in 1990 when they transferred from the maintenance division of Aer Lingus to the newly-established subsidiary.

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They entitled the workers to return to employment in Aer Lingus with their service, pensions and other entitlements intact if anything happened at TEAM and they required the State to retain a 51 per cent stake in the aircraft maintenance company. Aer Lingus has offered to buy out the letters for £25 million, or around £21,000 for each of the 1,200 employees. The unions at TEAM contend that the buy-out of the letters must be negotiated individually with each worker.

Aer Lingus is adamant that it is a good time to sell TEAM. It fears that the company could be left behind as the aircraft maintenance industry worldwide consolidates and big firms with the cash to invest in technology compete for business.

In addition it fears that TEAM could flounder in the next cyclical recession in the airline industry unless it is part of a major group.

But the unions are concerned that in a recession TEAM, as a subsidiary of a major group, would be seen as a little outpost which would be easy to close down. Both sides are predicting that the next industry downturn could come between 1999 and 2000. While Aer Lingus is understood to have sought over £30 million for the subsidiary, industry sources were sceptical that an offer of this size would emerge.

Set up in 1991 with a target of a turnover of £150 million by 1996, TEAM has had its share of problems, not all of which have been resolved. So far, the company has cost Aer Lingus about £130 million and had a turnover of £85 million. By 1999 it may make an operating profit of £1 million to £2 million or just break even.

The company has been beset by bad management/union relations, a downturn in the international aviation business and the problems at Aer Lingus which meant that planned maintenance contracts from the parent company did not materialise.

TEAM - The Experts in Aircraft Management - is attractive to potential bidders because of the high level of technical expertise among the employees in a sector where there is a shortage of skills.