Derek McDowell (Labour)

There are people who are prepared to pay for those frills. There are two distinct markets which are served adequately by Aer Lingus and Ryanair. I doubt there is room in this country for two directly competing low fare airlines that have no distinctions other than fare. That is what customers actually want, not that we would necessarily be any better off because of that.

The issue of equity is very important. It was possible in 1992 and again in 2001 for Aer Lingus to get through its crises simply because people appreciated that is what they were. Demonstrably the airline was in serious financial difficulty on both occasions and could conceivably have closed.

The problem now is there is not a general acceptance within Aer Lingus that a crisis exists. The workers do not actually see the company is in crisis and who can blame them? The airline has been quite profitable over the past three years and has made a profit every year since 1992, apart from 2001. The need for the dumbing down, redundancies and all of the various changes argued for by management is not clear and neither is the need for equity into the future. The case for this, as I understand it, has been made on three grounds. The first is that the long-haul fleet needs to be replaced. Even if it does need to be replaced, everyone accepts that this will not need to happen until 2008 to 2010 at the earliest. It is dependent, in any event, on a change in the bilateral arrangement with the United States. The immediate need, therefore, for money for fleet replacement is not clear. It is being spoken of as an obvious necessity, but it is not all that obvious.

As I understand it the short-haul fleet, as per the report, is on average just three years old. The peer review highlighted in the report suggests that in fact it is newer than virtually any other fleet owned by the major airlines in Europe. There is no need to replace that in the near future, although it could perhaps be added to. In terms of aeroplanes, therefore, the equity need is not clear-cut. There are basically two capital structure models in play. One is the low fares model, where the requirement appears to be cash rich and perhaps more flexible in terms of responding to crises, different markets, etc. The other is the more traditional model. It is pointed out that if the status quo is opted for and the traditional model for capital structure retained, Aer Lingus will surely have a debt in ten years time, but at a lower gearing level relative to other comparable European national airlines or former national airlines.

The most persuasive reason suggested for equity being required is to confront the possibility of future financial crises. I do not have a crystal ball and cannot say there will be a financial crisis in the next ten years, but one cannot say there will not be either. On balance, I accept there is likely to be a requirement for equity. However, there is not a crisis here. It is not a need that screams out from the paper and is interesting that even Goldman Sachs accepts this is basically the case. If we accept, for the sake of argument, that there is a need for equity, there are a number of different ways it can be done. The one that gives me most concern, to which I am absolutely opposed, is essentially the sale of Aer Lingus to a competitor. If, for the sake of argument, we were to sell Aer Lingus to British Airways, I would bet any money that within ten years the number of directors in Dublin, Cork or Shannon will be greatly reduced and we will find ourselves being routed through some hub in the UK, whether Manchester, Prestwick, Heathrow or whatever. That certainly is not in our interests. A direct sale to a competitor should be excluded absolutely from the start.

A second option, mentioned by Senators Ross and Morrissey, is to basically sell either a majority or minority by placing equity with a private investor. That would bring tensions to bear in terms of the role and the mandate of the company, with which I am uncomfortable. The company would have difficulty in working with such an arrangement as well, I believe. On the one hand are private investors, who might very well want to get out within a relatively short period of time, seeking to maximise their profit and wanting perhaps to strip assets out of the company. On the other hand there is the State, obviously seeking to maintain the country's strategic interests. I am not sure whether those two competing aims can sit comfortably side by side in a company for long. Goldman Sachs seems to anticipate that. If that were to happen, then the State should really only divest itself of part of the company, with a view to getting rid of the rest in good time.

The third option is an IPO. I presume this was the one favoured by the Leader when she made that announcement a few years ago. On the face of it, to opt for a partial IPO has certain attractions if it were possible to attract a reasonably varied level of investment so that one does not end up with one particular company. One needs to have a number of investors, whether institutional, private or individuals. If it were possible to get that type of share ownership of a minority shareholding, I would not have any ideological problem. I have no real confidence, however, that it is. Senator Morrissey expressed confidence to the effect that if Aer Lingus were floated there would be no shortage of takers. I am not entirely sure that is so. The airline business is going through a difficult time and a pretty favourable coincidence is needed of good stock market conditions and timing in terms of global aviation, specifically as regards Aer Lingus. I am not sure we have reached that point currently.

While I do not have a problem, in principle, with the notion of an IPO of a minority shareholding, there are real practical difficulties involved. This is something that should be approached with serious caution. This has been a useful debate. The Minister of State undertook in his contribution, earlier, that there would be "engagement", his word, between the Department of Transport and the social partners on the future of the airline, following the meeting on 9 December at which I assume the sub-committee will make some type of recommendation. I hope this will be meaningful engagement. It is important that the workforce, which has given so much over the past ten years, is brought into discussions in a serious way. While none of us wants to see a decision delayed for much longer, it is nonetheless important that there should be some type of meaningful consultation with the partners in Aer Lingus before the decision is taken or announced. I will leave it at that. I hope the Department makes the right decision, but for goodness sake, let it make a decision of some kind.