Selling Aer Lingus

The on-again off-again flotation of Aer Lingus seems to be on once again

The on-again off-again flotation of Aer Lingus seems to be on once again. The Minister for Transport has indicated that he is minded to support a proposal from the company's board that could see the national carrier join the stock market within eighteen months.

It follows a review of various options and related issues, the most significant of which was whether or not the State could retain ownership of Aer Lingus's valuable landing rights at London's Heathrow airport. This has turned out to be a non-starter from a legal and practical standpoint.

The sale could raise in excess of €500 million but the main attraction from the Department of Transport's perspective is that it will allow the Government disengage from the airline. Aer Lingus may currently be riding high but the viciously cyclical nature of the aviation industry pretty much guarantees that this will not last. By selling the airline now the Government can ensure that it will not find itself in the all-too-familiar position of being expected to bail out the carrier in the future, despite being explicitly prevented from doing so by EU law.

The mechanism proposed by the Aer Lingus board is also politically attractive because it gets around the unfortunate legacy of the sale of Eircom. Initially a significant stake in the company would be sold to institutions, with a view to a stockmarket flotation within eighteen months. The central involvement of the institutions in the subsequent flotation should be enough to avoid it being labelled a state sponsored offering a la Eircom.

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Barring any compelling advice to the contrary, the Minister is expected to bring a proposal to the Government shortly. He has also committed himself to seeking the approval of the Dáil to the "general principles" of any disposal of shares in the company. The financial logic of the Minister's case may be compelling, but he will have to win over both Cabinet and Dáil colleagues with other - possibly more emotive views - on whether the State should retain ownership of the airline which, despite all its dificulties, remains a source of national pride.

In this context it is worth noting that Ryanair - despite its recent travails - would be priced at about five times the Aer Lingus value on the stockmarket. In so far as the concerns of either company are the business of the State, Ryanair is going to be a much more significant force in the aviation world for the foreseeable future. An exit by the State from Aer Lingus however would allow for an overdue and welcome rebalancing of the government's aviation policy which historically has been influenced greatly by the needs of the State-owned carrier.