Derek McDowell (Labour)

The experience of the Minister's colleague, the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Fahey, at the weekend reminded me of the Labour Party convention in Dublin a number of years ago when the then MEP, Ms Malone, was nominated in circumstances which were not too dissimilar to the nomination of Mr. Ó Neachtain MEP. We know what happened there, but that is a matter for the people of the north-west.

I am opposed to this Bill, as is my party. The ostensible purpose of the Bill is to provide for the ESOP but the real purpose is to allow the Minister to effectively sell off Aer Lingus. I am not one of those in the Labour Party who has a knee-jerk reaction against privatisation. I think there are circumstances when the private sector can do certain things better than the State sector. There are also times when there is no good strategic reason for retaining a company within the State sector. For example, when I was the finance spokesperson for the party I did not oppose the privatisation of some of the State banks such as ACC because I felt there was no longer any strategic niche being served. I wanted to make that point first to show that this is not knee-jerk reaction on my part. However, I profoundly believe that it would be a mistake and not in the strategic interests of Ireland, to privatise, sell or float Aer Lingus.

I object to the typically glib characterisation of Aer Lingus by Senator Ross. He has given the impression of a basket company populated by workers and unions who regularly bring it to its knees. The reality is that it is a company in place for nearly 70 years which has given service to the Irish people and Irish business, which has been profitable for almost all of its existence and which has received precious little financial support from the State during that time. Workers have made significant sacrifices in recent years in order to ensure the future of the company. It is a fact that in the 50 odd years of its existence from 1937 until the early 1990s, Aer Lingus received virtually no equity injection from the State at all. In the early 1990s when the Minister's party and mine were in Government, it received IR£175 million. It then ran into financial difficulties again in the aftermath of 11 September 2001, yet even in that context it did not receive any further financial assistance from the State.

I am opposed to the privatisation of Aer Lingus primarily because I do not believe that the strategic interests of this country can be guaranteed if the company passes into private hands. The trend in recent years is unmistakable, where large companies gobble up smaller ones. The trend is for large alliances to be formed between companies, some of which are national airlines and some of which are private. However, the trend is unmistakably towards consolidation. There are fewer companies around and there will be fewer around in five or ten years time. The trend within those companies and within those alliances is also clear. They are setting up hubs. It makes much more commercial sense for a particular airline or set of airlines to agree to use a particular airport as a hub, be it Amsterdam, Frankfurt or Paris. There is a significant likelihood that if Aer Lingus is sold, for example to British Airways, in a short period of time we will find ourselves a mere spoke in the wheel. We will travel to Heathrow or Manchester and from there to other destinations. It will almost certainly be in the interest of whatever airline takes over Aer Lingus to continue to fly between Britain and Ireland and perhaps to Paris and Rome. We will be back in the 1960s where Aer Lingus had a half dozen routes to the European mainland, a couple of routes across the Atlantic and very little else. Everyone will be required to go through two or three hubs or perhaps only one. That is not in Ireland's interests.

I cannot see how the argument can be made that this is in the interests of Irish tourism. We all know that direct access is very important to tourists coming here, be it from America or the European mainland. It has always fascinated me why people do not want to go to the west of Ireland. I am familiar with that part of the country as my wife is from Clare. It has always surprised me that it is not possible to bring more tourists straight to the west as they always end up travelling to that part of the country eventually. That is an aside. The point is that tourists want to go straight to Ireland and they do not want to spend half a day in Heathrow on the way over and half a day in Heathrow on the way back.

Likewise, businesses want direct access. We are spending a fortune facilitating businesses in getting quickly to the nearest airport. If we then ask them to spend a lot of time at an intermediate airport, it devalues our national airline. It is not in our strategic interest that this should happen. I would bet any money this is likely to happen.

The Minister of State referred to several other aspects of the strategic interest but I am not sure I agree with him. I note he referred to Heathrow slots. Perhaps he has some magic formula to try to retain the Heathrow slots in the strategic interest of Ireland or as a means of guaranteeing they will be used for access to Ireland. It appears this will be very difficult.

On regional development, the Minister of State rightly pointed out that this is something which can be achieved through direct subsidies. It is being done at the moment, to Aer Arann and other airlines, and it does not appear to impact one way or the other on Aer Lingus.

I want to outline why I think the arguments in favour of privatisation do not stand up. There are basically three arguments. First, it is argued that privatisation is required to get investment into the company. It is argued we need it to have the competition customers want, which reduces prices and is generally good for business, and that we need it simply because we need the money. The truth is that no matter how valuable the company is, or how important it is in terms of our strategic interest as a country, it is still only worth approximately €500 million or €600 million, which would just about pay for the Minister's savings schemes this year. It might have paid for a good part of a stadium, but it is not big beer. We could not justify the privatisation of the national airline purely on the basis that it would take in that sort of money, and we should not go down that road.

A more important issue is that of investment. Clearly it is necessary to get investment into Aer Lingus, to invest in the fleet and invest for the future in good times. Governments sometimes seek to create the impression that is not possible to do this within the context of State aid when in fact it is perfectly possible. However, one cannot bail out a State company by using State money. What happened in the early 1990s would not now be possible. It is perfectly possible, however, to use shareholder funds and Government equity to invest in the company. It would be perfectly possible for the company to receive an injection of equity from the State to improve or increase the size of its fleet. The Minister acknowledges this in his speech. He said the State cannot invest under EU rules when the airline is in crisis and it would be very difficult to justify injecting scarce Exchequer funds into a profitable Aer Lingus when there are many other competing and more deserving priorities. He is making it quite clear that the reason Aer Lingus is not getting an injection of the funds it needs to improve and expand its fleet is due to what he refers to as other more deserving priorities and demands on State money. This is an important point, because there is nothing illegal, improper or contrary to EU rules while Aer Lingus is in profit in making the necessary investment to provide for the future of the company.

There is a good argument for saying the company should borrow rather than depend on shareholder funds. Shareholder funds are of necessity more expensive and the return is greater to the person providing the funds. If the gearing is right — it probably is in Aer Lingus — there is a powerful argument for Aer Lingus to simply borrow on the open market in the absence of any willingness on the part of the Government to invest in it.

It is also argued that Aer Lingus must be privatised to ensure competition. This is an interesting argument, but one which does not stand up. I accept that in the airline industry, as in any other industry, competition is a good thing. The experience in this country was that Ryanair was snapping at the heels of Aer Lingus for a long time before they developed two segregated markets, which was good for the industry as a whole. It provided customers with a choice of the sort of airline they wanted and, generally speaking, it drove down prices. There is no contest anymore, but that is a good thing.

The implication of what the Minister, Deputy Brennan, is saying is that one cannot have proper competition if one company is State owned and the other is privately owned. Experience in this country does not suggest that is the case. We can look to what happens to two private companies if there is competition. Our limited experience of this is instructive. We saw what happened when, for example, GO recently tried to compete with Ryanair on one or other of the Scottish routes. Lo and behold, the guy who trumpeted the merits of competition and low fares and the availability of choice for customers, Mr. O'Leary, not only took a very aggressive predatory attitude towards GO but actually had a contingency fund. Ryanair had money set aside in the bank, ready and waiting for any other private company that would have the nerve to come in and try to compete with it. Its interest was not to ensure customers got the best possible deal when travelling to Glasgow or Edinburgh, but to get GO out of Ireland as quickly as possible, in which it succeeded. The suggestion that competition among private airlines in Ireland will in the long term benefit customers is not fair.

The truth is that the Irish market is small. There must be competition but it is likely we will have to regulate that competition in the future. The point was made in the other House that Aer Lingus chose to compete with Jetmagic out of Cork when that airline recently tried to make an impact in Cork. There are those in Cork who blame the national airline for taking what they regard as an excessively aggressive view. It may well be that it contributed in some way. However, one must look at the flip side of the coin. Competition is competition and one cannot say to the national airline that it should behave like some sort of benevolent partner when someone is threatening its potential market. The national airline must be allowed to compete in the same way as a privately owned airline.

In the past we have on occasion leaned too much on Aer Lingus. I agree with Senator Ross that there has sometimes been undue interference in its workings and management. We have seen in the past few years that when left to its own devices the partners in Aer Lingus, namely, management and workers, can forge a decent future among them. There is a lesson in that in terms of the State getting involved, namely, that we should, by and large, butt out other than setting strategic aims for the company.

I want to deal with the ESOP issue. I have a more jaundiced view of this matter than others may have. I support employee share ownership because it gives people a stake in the company for which they work. It gives them an incentive to work harder and creates an identification with the company. It frequently leads to more flexibility in the way people are willing to identify their interests with the company. It allows them to share in the company's profits. I believe in it for all these reasons and I believe these arguments hold good as much in the private sector as in the public sector. The difficulty is that I do not think ESOP is created for any of these reasons. This ESOP is created for the same reason the Eircom ESOP was created by the Leader when she was Minister of Public Enterprise six or seven years ago, which is to smooth the way to privatisation. It is, in effect, a bribe to the workforce in order to smooth the way of Aer Lingus out of the State sector. The Minister denied this in the Upper House. If he is saying the merits of ESOP stand up, why not make provision for it now? It is being paid for as a result of the sacrifices of the pay freeze which has occurred as a result of the survival plan. The ESOP should be introduced, irrespective of what happens to the company in the future.

I support the amendments signalled earlier by Senator O'Toole. The Minister detailed the progress of the ESOP negotiations during the course of his speech. During that time, hundreds of workers who participated in and contributed to the survival plan, and who in effect took the pain of that plan, left Aer Lingus. It is only reasonable and fair that they should get the benefit. There is merit in what Senator O'Toole said and it would be grossly unfair if individual workers who contributed towards the survival plan, and took much of its pain, were to be penalised simply because they have left over the past few months or couple of years.

Debate adjourned.