Noel Dempsey (Meath West, Fianna Fail)

Even the ESOT refused to contemplate supporting such a move. I accept, arising from that decision, that it is legitimate to raise two questions: first, why does the Government retain its 25% stake if it is not prepared to use it to "protect" these slots and, second, why did the Government privatise Aer Lingus and was privatisation wrong?

These are legitimate questions. I will take each in turn. The State retained a strategic shareholding of over 25% with two key objectives in mind. First, it provides a major block to a hostile takeover by enabling the State to prevent a compulsory takeover of 100% of the company. Even if the company was acquired, Aer Lingus would have to continue to be operated as a separate entity. Members will recall another incident involving Eircom where a company making a takeover bid acquired 80% of the shares. The other 20% had to be sold to the company. It was to prevent such a scenario arising that the Government kept the strategic shareholding. Furthermore, the acquiring entity would not be able to extract the Aer Lingus assets, including slots and cash. This provides a significant disincentive to hostile takeover attempts.

The second strategic advantage of a 25% shareholding is that it enables Government to protect the memorandum and articles of association of the company. This ability to block special resolutions to change the articles provides a safeguard against any disposal of Heathrow slots: "Disposal of slots relates specifically to the sale of slots and/or the transfer of slots between airlines and does not apply to the reallocation of slot pairs to new or existing bases." However, the Government's legal advice is that, having regard to the duties of the board of directors pursuant to the Companies Acts and the memorandum and articles of association of Aer Lingus, shareholders do not have the power to overrule management decisions on business matters. In effect, this means that even if the Government on its own, or in combination with other shareholders, called an EGM and voted for the restoration of this link, management of Aer Lingus is not obliged to follow any directions from the shareholders regarding business matters or to obey any resolution regarding such matters.

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