Máire Hoctor (Tipperary North, Fianna Fail)

It is a pleasure for me to address the Seanad on this, my first occasion to do so. On behalf of my colleague, the Minister for Transport, Deputy Noel Dempsey, I would like to take this opportunity to clarify the Government's position regarding its 25% shareholding in Aer Lingus.

The fundamental purpose for which the initial public offering was undertaken was to create a commercially independent Aer Lingus with access to the capital markets which would serve the Irish economy more effectively than an Aer Lingus in ongoing State ownership and subject to the constraints of state aid rules. We can see the positive results of this decision in terms of new services being developed. In particular, we have seen a major expansion of transatlantic services, where during the coming winter the company will serve seven cities in the US in comparison with four previously. The IPO also made it possible to raise new equity to support the future payment of pension increases and thereby address a key concern of the Aer Lingus trade unions and workers. Without an equity injection, the company would have faced major difficulties in addressing these needs while maintaining its competitiveness in a challenging market.

Regarding the measures undertaken to protect strategic interests in the context of the privatisation of Aer Lingus last year, the State retained a strategic shareholding of more than 25% with two key objectives in mind. 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 were acquired, Aer Lingus would have to continue to be operated as a separate entity. 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 the 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. The senior officials group report states that disposal of slots relates specifically to the sale of slots and 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 even if the Government on its own or in combination with other shareholders called an EGM and voted for the restoration of this link, the 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.