The opposition to the sale of the Government stake in Aer Lingus is based on two patently false assumptions. The first is that the Government’s current 25.1 per cent stake gives it control over what happens at the airline. The second is that Aer Lingus can continue on indefinitely under its current ownership structure.
Control of the airline was sold off when the company was floated on the stock exchange in 2006 and the Government offloaded 75 per cent of the airline. Up to then, the Department of Transport was famously known as the “downtown office of Aer Lingus”. Nobody was in any doubt that, at the end of the day, it was the minister of the day that would call the shots.
Anybody who thinks that the Government now controls what happens is mistaken. It has a couple of representatives on the board. It could, with the support of shareholders owning 5 per cent more of the company, block the sale of the Heathrow slots. But commercial decisions, such as new routes opened up by Aer Lingus, are done on the basis that they will boost profits – not because it “suits” the Government.
Aer Lingus is back flying to the west coast of America because it can make money doing so, due to the large US investment in Ireland. To argue that it is now operating these routes to suit the Government’s foreign direct investment agenda is looking at it the wrong way around. The same applies to other management actions, including dealing with staff and going about the normal commercial exercise of trying to keep costs down and boost revenues. All its decisions are based on the fact that it is a quoted stock exchange company trying to grow its profits.
It would continue to operate on this basis if sold to IAG, but with a new owner and one which can bring it significant benefits as a large global airline.
If the argument about control is often overlooked, the one about the certainty of ownership change at Aer Lingus is being completely ignored in the debate. Aer Lingus’s biggest shareholder is Ryanair, which has been ordered by UK competition regulators to reduce its stake to, at most, 5 per cent. It is threatening to continue legal action against this ruling, but has lost every round so far. The strong likelihood is that it is going to have to sell its shares. The Government has also said it will sell when the time is right – which it judges to be now.
Chunk of shares
If the IAG offer is not accepted, then there is the prospect of a new chunk of Aer Lingus shares coming on the market, as Ryanair sells down its stake. No other bidder has emerged since the IAG offer came on the table – Etihad, the Gulf airline with a 5 per cent stake in Aer Lingus, has signalled it will sell to IAG. The ownership structure of Aer Lingus is going to change whatever happens. The status quo on the shareholder register is not an option.
The trade unions have objected and are seeking tighter assurances on jobs and terms and conditions. It is their job to fight their corner and try to use the situation to get the best protection possible for their members. Some opponents of the deal may also be happier to have the Government on the share register as a kind of “court of appeal” in some crises, or because they favour State ownership.
However, there are other constituencies here, too. The deal is supported by Aer Lingus management as the best way to increase employment at the airline, and is also supported by the national airports. The indications that employment will rise at Aer Lingus after the deal can only be estimates. That is the nature of business. But more flights and more aircraft mean more jobs and more security for those in employment. IAG also has a strong balance sheet to help to fund future investment. Why would IAG buy Aer Lingus and then try to reduce services or shrink its business? I wonder if the political objection from the Opposition parties is really in tune with what people in north Dublin, Shannon and Cork will feel as they weigh up what is on offer?
Then there is the consumer, the one constituency so often forgotten in these debates. There have been arguments that the takeover will reduce competition. The European Commission will have to judge this in an initial review of the deal. The proposed takeover of Aer Lingus by Ryanair was rejected on the grounds that, combined, they would be the dominant player on too many routes. However, an Aer Lingus owned by IAG will still have Ryanair to compete against on the majority of its routes. It is hard to see such competition being anything but vigorous. Michael O’Leary does not “do” cosy cartels.
There is a final argument: that Aer Lingus has done well enough in the past few years as a small, independent airline and should be allowed to continue as such. This is a reasonable view, though the uncertainty about future shareholding and the likelihood of Ryanair having to sell would still leave its ownership in doubt. On balance I still think an IAG takeover offers more opportunities for growth and new jobs and more options in developing connectivity out of Ireland, as well as offering considerable security for the future.
If the Government still owned 100 per cent of the airline, then you could argue that we are selling off control of a vital asset. But that control was sold off nine years ago when the company was floated. All we are talking about now is selling a minority stake in the second-biggest Irish airline.
Cliff Taylor is an Irish Times managing editor