Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

We own a minority 25.1% shareholding and I want to use the opportunity now to maximise the benefit of that residual shareholding to put the company on a firm footing for the future while protecting key general national interests. In reality, the State has little or no influence today in relation to the company although it can, with the support of others, prevent the disposal, if not the transfer, of the Heathrow slots. I want to protect and strengthen that position. I want to ensure that, in the national interest, we have guarantees over the use of the Heathrow slots in a time of transition. I want to ensure the best opportunity for increased employment and growth in the company. I want to ensure that Ireland's essential links to the global economy are enhanced.

As background to the offer, I note that in 2012 the Government decided, in the context of the State asset disposal under the EU-IMF programme, that the State's 25.1% shareholding in Aer Lingus could be sold on terms and at a price that were satisfactory. Subsequently in June 2012, Ryanair indicated its intention to make an all-cash offer of €1.30 per share. For a number of reasons, this was unacceptable to the Government. No other bidder has emerged to date. While initial proposals were rejected, the board of Aer Lingus indicated to IAG in January 2015 that it would be willing to recommend the financial terms of a proposal based around a share price of €2.50. An inter-departmental steering group, which was established when the Aer Lingus shareholding was included in the State asset disposal programme, was asked to review the potential sale. The group was chaired by the Department of Transport Tourism and Sport and included representatives from the Department of Finance, the Department of Public Enterprise and Reform and NewEra. NewERA engaged expert external financial advisers, Credit Suisse and IBI Corporate Finance, and legal advisers, McCann FitzGerald, to assist the steering group in its work. The group has engaged in intensive work over the last few months and has recommended that the Government should accept the IAG offer. I have been briefed by the group over the intervening period and have also had discussions with IAG directly. All key stakeholders have been before the Joint Committee on Transport and Communications. I have also kept Government briefed on key developments. Yesterday, 26 May, the Government decided to proceed with a sale subject to Dáil approval of the general principles.

The IAG board and the independent Aer Lingus directors have announced that they have reached agreement on the terms of a recommended cash offer to be made for Aer Lingus. This involves a cash payment of €2.50 per share and the payment of a cash dividend of 5 cent per share. This latter element is payable in any event this coming Friday, 29 May 2015. The offer will be subject to a number of conditions including the receipt of EU merger clearance of the transaction on terms satisfactory to IAG. It also requires the passing of a number of Aer Lingus shareholder resolutions to approve the provision of the connectivity commitments to the State, the making of amendments to the Aer Lingus articles and the re-designation of one Aer Lingus share held by the Minister for Finance as a "B" Share. All of these are necessary to implement the connectivity commitments offered by IAG. It is also subject to the Minister for Finance accepting the offer, which condition IAG may not waive, and to Ryanair accepting the offer, which condition IAG may not waive unless Ryanair's shareholding is 5% or less. I will come back to this point later.

The process to date has taken time. It should have. We are dealing with a hugely significant matter. Aer Lingus and its operations represent a significant and legitimate national interest. Aer Lingus plays a key role with almost 45% of the airline seats at Dublin, Cork and Shannon airports on Aer Lingus flights. It also supports significant numbers of jobs and is in the top 50 of Irish employers. I recognise the intrinsic value that Aer Lingus brings to the Irish economy. I recognise the importance of ensuring it has a viable future. I recognise the benefit and, indeed, the need to set it on a route to continued growth. The proposed merger with IAG provides the best opportunity to meet these objectives, which is a credit to the company's management and staff. However, I must emphasise that across Europe many formerly State owned airlines including Cyprus Airways, Malev, and Hungarian Airlines have now failed. While a number of European airlines remain under State control, some are undergoing significant restructuring or are open to potential disposal.

In fact, Finnair and the Portuguese airline TAP are the only other examples of a national, small independent carrier competing against generally larger companies. The Aer Lingus board and chief executive have clearly recognised and stated publicly that the IAG proposal presents the company's best opportunity to do so and reduce risk. I have to balance this against the limited role the State has now where, acting with others, it can prevent slot disposal but not use of these slots. I want to take the opportunity to strengthen this role while placing the company in a better position to compete.

The factors that the Government would take into account in considering any sale of its shareholding were clearly outlined at the outset. In addition to price, other issues that were identified were the potential impact of a sale on connectivity including transatlantic connectivity. We have also had regard to competition in the air transport market. Employment issues generally and jobs in Irish aviation were particularly important as was the future of the Aer Lingus brand. I will have regard to each of each of these aspects in outlining my rationale for this disposal.

There is one other aspect that I want to mention. Government aviation policy is based on competition between at least two airlines with significant home bases in the Irish market. We are fortunate to have in Aer Lingus and Ryanair two very successful companies based in Ireland. I recognise the outstanding achievement of Ryanair since its foundation and am proud to acknowledge its contribution not just in Ireland but also to the aviation sector and customers across Europe. However, given our status and the importance of connectivity, it has consistently been the Government's position that Ryanair should dispose of its shareholding in Aer Lingus. The Government would not wish to see Ryanair remain as a significant minority shareholder in Aer Lingus following a takeover by IAG. For this reason, we welcome the fact that the IAG offer will be conditional on Ryanair accepting the offer and it will not be possible to waive this condition unless Ryanair's shareholding is less than 5%.

I now want to turn to the issue of connectivity and the impact that the sale of the State's shareholding in Aer Lingus will have in this regard. I am convinced that a merger with IAG provides an excellent opportunity to strengthen Aer Lingus, to protect its brand and to enable it to grow and succeed as a commercial entity. However, in selling the State's shareholding in the airline there are other national interests that have been taken into account in reaching a decision. Primary to this is the question of connectivity and connectivity through Heathrow. Sometimes the depth of concern here is not always appreciated. It does not arise because of a fundamental disbelief in the commercial viability of these routes. It does not arise from a fear that our airports cannot deliver these services. It arises because right now, connection through Heathrow is a significant national interest.

Heathrow is the most significant destination airport from Dublin. It accounts for approximately 8% of air transport seats by destination. In comparison, the next largest hub airports from Dublin are Paris and Amsterdam, which account for about 3% and 2% of air transport seats respectively. The Heathrow route accounts for just under 20% of passengers at Cork Airport and nearly one quarter at Shannon. Heathrow is the UK's only airport with the requisite size and scale to deliver a comprehensive service to long-haul destinations across the globe. In 2013, it provided access to 180 destinations in 85 countries while being serviced by 82 airlines. The high level of frequencies of connecting flights from Dublin, Cork and Shannon helps passengers achieve attractive, time-minimising connectivity options. These are essential to our interests.

The commitments secured in our negotiation with IAG retain the protection that has been available for the last nine years and provides assurances for the coming seven years. On slot disposal, the Government can at present, with its existing shareholding plus 5% from others, prevent the disposal of slots. Under the new arrangements, the Minister for Finance in consultation with my Department would have that ability.

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