Privatisation of Aer Lingus requires research

Ground Floor: Governments in western countries occasionally intervene in their economies in the area of supply side, ie the producing sector.

Arguably, Irish governments have intervened in the supply side to a greater extent than other nations. The reasons for this are historical rather than ideological. The most notable vehicles for State intervention of this kind are IDA Ireland, Enterprise Ireland, ESB, CIÉ, An Post and of course Aer Lingus.

The conventional wisdom that created these bodies went as follows: the Republic had no industrial revolution - there was little "producing" know-how; entrepreneurs were thin on the ground and the huge, "lumpy" investments required for power stations, airports, etc, were beyond the capacity of the private sector.

So the State had to get involved, using taxpayers' money, borrowed funds or both.

There was a time when we were proud of most of our semi-state bodies and believed that they gave good value for money. They seemed to combine a genuine regard for the national interest with a sleek, professional approach.

Aer Lingus was once highly regarded. We were all proud of our national airline, with the shamrocks and saints' names emblazoned on the aircraft.

There were of course a couple of lame ducks, such as CIÉ, but, by and large, we were satisfied with our semi-state bodies.

Privatisation is again on the agenda and it is useful to reflect on what went wrong. What was it that tarnished the lustre of State-run companies and engendered a change in our perception of them?

Well, there was little transparency and we didn't really know what was going on. It wasn't until Ryanair provided a healthy dose of competition that we realised how Aer Lingus had been over-charging us. In general, consumer awareness began to develop and consumers began to realise what enormous power they had.

We also began to realise that private sector entrepreneurs weren't all bad.

We began to realise that, whenever the State had to bail out a semi-state body, it was our taxes that were going down the drain.

Globalisation, the development of capital markets and of large corporations meant that "lumpy" investment could be undertaken by the private sector - possibly by forming syndicates. Infrastructure was no longer the sole preserve of the State.

It was believed for a while that public-private partnerships (PPPs) could make the public finance look better. Eurostat ruled that where the private sector was taking on the larger risk, the State did not have to include its share of the funding in its accounts. The statistical wheeze had a number of attractions for governments.

Finally, we began to doubt the "strategic national interest" rationalisation for State ownership because it was readily apparent that more than half of our producing sector had become foreign-owned without a murmur from any Irish quarter.

So, there were several forces at work. It wasn't really that the semi-state bodies became worse: it was more a growing realisation on the part of the public that they had never been better than mediocre and were willing to exploit their dominant positions.

Notwithstanding all of the above, it should not be assumed that privatisation is always a preferable state of affairs. Despite the fashion and the zeitgeist, it is not a panacea.

We had the fiasco of Telecom Éireann. We also had several examples of PPPs where the private sector money never appeared and the tax-payer was left holding the bag.

It is essential to examine each case and to undertake the necessary research so as to minimise the risks involved in a change of ownership. A question that should always be asked is whether the flaws in the existing ownership structure could be fixed.

If the analysis showed where and how this could be done, it might well be preferable for the Government to invest in a new fleet for Aer Lingus, assuming that it could get a reasonable return on its money.

In light of recent decisions, it seems clear that the Government does not believe this is feasible. But it is far from obvious what analysis has been undertaken to support this conclusion - which really boils down to a view that private sector executives will perform much better than their public sector counterparts.

Private entrepreneurs are experienced in the ways of the market but they also have the "defects of their qualities", as the French say. We may have to put up with a tooth-and-claw approach in the interests of efficiency. We may have to see the former State asset being run by a syndicate of tax exiles - assuming they would be interested in a trade purchase despite the Government's share-holding.

Several different scenarios can be postulated and these could be multiplied if the workers are made an offer they can't refuse for their shares. Some of the potential outcomes could be advantageous to the travelling public, others not. The possibility of asset-stripping, for example, can never be ruled out.

Basically, privatisation is a leap in the dark and should only be contemplated after diligent research demonstrates that there is no better option.

Part of this research should be based not just on financial accounts but also on international benchmarking. For example, how did Aer Lingus compare with other airlines with regard to numbers of pilots and cabin crew per aircraft, number of ground staff per 1,000 passengers, maintenance staff per aircraft, safety record, reliability records, customer satisfaction responses, costs per air mile, changes in market share, etc.

Performance under these heads may have been poor in the past but it is necessary to examine whether adequate improvements can be made before deciding on a radical change to a new form of ownership which is largely unpredictable.

Privatisation is a huge step which might or might not work and, unfortunately, there are no guarantees. Decision-making should be informed by comprehensive research and benchmarking on a continuous basis. It is not immediately obvious that the present rather error-prone administration had the necessary analytical apparatus available to it.

The author is the former chief economist and assistant director general of the Central Bank