Wednesday, 28 January 2015
Possible Sale of Aer Lingus: Statements
Much has been said in recent days about potential takeover offers for Aer Lingus. The issue has been a matter for debate since it was first announced in December that International Airlines Group, IAG, was considering making a takeover bid for Aer Lingus. While the matter has since moved on, we are still in the early stages of any process. Both Aer Lingus and IAG have made clear throughout that there is no certainty that any such offer will be made, nor is it clear what might be the terms of any such offer. Yesterday, the board of Aer Lingus announced that it had indicated to IAG that the financial terms of the latest proposal are at a level which it would be willing to recommend to shareholders, subject to being satisfied with the manner in which IAG proposes to address the interests of relevant parties.
At this point, I emphasise again that any takeover offer will be given very careful examination before the Government takes any decision on the issue. There are important considerations to be taken into account in addition to price. The issues that would have a potential impact of any sale include: connectivity to and from Ireland, including direct transatlantic services, and connectivity via Heathrow; competition in the air transport market; jobs in Irish aviation; and the Aer Lingus brand.
A steering group chaired by my Department and comprising representatives from the Departments of Finance and Public Expenditure and Reform, and NewERA, has been considering this matter since the first approach was made in December. The steering group is examining issues related to a potential offer for the State's shareholding in Aer Lingus. NewERA has procured external financial and legal advisers to help the steering group in its work. The group will report back to me shortly on the key issues and the matter will be considered further by the Government, if necessary, before any final decision is taken.
While no formal offer has been made, Aer Lingus is still in an offer period under the rules of the Irish Takeover Panel. For this reason, the rules regarding communications by all parties, including shareholders, in such a period apply. Aer Lingus's shares are still being trading on the Stock Exchange and great care needs to be taken in comments made by me and my Government colleagues. If a formal takeover offer is made for the company, all relevant matters relating to that offer will be placed in the public domain as part of the offer. At this stage, however, I can say very little new on the matter.
Yesterday, I briefed my Cabinet colleagues on the approaches that have been made to the board of Aer Lingus and issued a press statement afterwards. In a statement also issued yesterday, IAG recognised the importance of direct air services and air route connectivity for investment and tourism in Ireland, and stated its intention to engage with the Government on these matters. Representatives from the steering group are having a preliminary meeting with IAG today to begin that process. However, if any confidential information is shared by IAG during these contacts, the steering group is legally obliged to keep such information confidential.
The State owns 25.1% and Ryanair owns 29.8% of the issued share capital in Aer Lingus. A statement issued by the board of Aer Lingus earlier this week indicated that the revised proposal from IAG is conditional on, among other things, irrevocable commitments from Ryanair and the Government to accept the offer. While such conditions may be waived by IAG at any stage, they are an indication that the company, in advance of making any formal offer to Aer Lingus shareholders, is seeking the prior agreement of the Government and Ryanair to accept such an offer. As the State's 25.1% shareholding cannot be compulsorily acquired, it is for Government to decide, having examined the matter carefully, whether to accept or reject any offer. Since no formal offer has been made, there is no deadline by which any such decision needs to be made.
Section 3(5) of the Aer Lingus Act 2004 also provides that the Minister for Finance, in whose name the State's shareholding is held, may not dispose of any shares in Aer Lingus without the general principles of the disposal being laid before and approved by Dáil Éireann. Approval was given by the Dáil in 2006 for the general principles of the Aer Lingus initial public offering. However, these principles stated that the State would retain at least 25.1% of the shares. On that basis, any decision to reduce the State's current shareholding would need further Dáil approval.
I appreciate the Minister's decision to come to the House at short notice. I also understand the reason the time provided for contributions has been further reduced, although three minutes is not sufficient for me to discuss all the issues I would like to raise. I assume Senators will have further opportunities to discuss this issue in more detail.
The Fianna Fáil Party's position on a possible takeover of Aer Lingus is shared by many of the Minister's colleagues on the Government side. My party firmly believes in the importance of retaining the Government's stake in Aer Lingus to protect the strategic interests of the country and maximise employment potential in the greater Dublin region, Shannon and Cork. We are concerned that the approval of a takeover bid would result in substantial job losses and impair our connectivity into Heathrow Airport.
It is no coincidence that the IAG takeover bid for Aer Lingus was made after the Government effectively wiped away the liabilities in the Aer Lingus pension scheme. It is much more desirable for IAG to take over a company that does not have pension liabilities. Two years ago, I told the Tánaiste and Minister for Social Protection, Deputy Joan Burton, that the Government was clearly teeing up Aer Lingus in order that it could sell the State's stake in the company. I genuinely hope I was wrong on that front.
Some of the language used by the Minister signals what is to come and is a cause of concern. I welcome his clarification of the position and note his comment that he will carefully consider the matter and is taking advice from outside experts. However, we need only consider what happened with the airport pensions scheme after the Minister's previous statement that he would carefully consider proposals on the scheme. I hope he makes the right decision this time.
I thank the Minister for coming before the House at short notice. Aer Lingus has always been an Irish brand. The company used the famous slogan, "Look up, it's Aer Lingus", in an advertisement many years ago. People also remember the Harp advertisement featuring Sally O'Brien. Irish brands such as Kerrygold, Guinness, Barry's Tea and Aer Lingus are recognised worldwide. I am afraid that a takeover of Aer Lingus would result in the brand disappearing.
As the Minister noted, a formal offer has not been made at this stage. It is important that everything is put on the table and all due consideration given to any offers that are made.
Aer Lingus's major asset is its slots in Heathrow Airport. The current offer is for €2.55 per share. When Aer Lingus was privatised by a Fianna Fáil-led Government, the company was sold at €2.40 per share. This means the value of an Aer Lingus share has increased by 15 cent in eight years. The net worth of the company is €1.3 billion, consisting of €400 million in cash reserves, a fleet worth €600 million and slots valued at €300 million. I understand the current offer from IAG equates to €1.3 billion, which is not enough. That issue needs to be considered.
Tourism and our regional airports are part of this larger scenario because tourism is our second largest industry. It is worth €3.1 billion to this economy after agriculture. A total of 7 million passengers came to Ireland either by ferry or air last year because we are an island nation. As the Minister pointed out, connectivity is the major issue. We need connectivity with the rest of Europe and the world. This is why it is important that we maintain the airports and ensure that airlines fly in with the best possible value to give to tourists and businesspeople. If something happens to the slots from Heathrow, which is one of the major hubs in western Europe, these people will not come here on business or for tourism and it will be a loss. How many jobs are created through tourism every year? It is very important that we look at all the matters on the table. It is very interesting to look back at the 2006 debate. Certain people are now saying the opposite of what their party said in 2006. It is important that everything is put on the table before we make a decision.
I welcome the Minister to the House. It is not the first time the Minister and I have had these discussions on aviation policy and I am sure we will have many more. I do not know what the board of Aer Lingus recommended and agreed to. If there is nothing there, as the Minister's speech said, that is fine with me because like the Minister and the Minister for Public Expenditure and Reform, I think this should be carefully analysed and discussed. Is British Airways a suitable candidate to take over Aer Lingus? I do not think so. It is overshadowed in its native jurisdiction by easyJet and Ryanair. The amalgamation of previous national airlines is an anti-competitive development in European aviation. I wonder where the Commission is. It ruled out the Ryanair takeover of Aer Lingus as being anti-competitive. Where is it now that British Airlines is taking over Aer Lingus? The Competition Commission in the UK in what I thought was an unacceptable decision intervened in a possible merger between two Irish companies to require Ryanair to sell its shares in Aer Lingus. This is an appalling example of extra-territoriality. How can the UK competition authority overrule a merger between two Irish companies? The Competition Commission was extending its jurisdiction to where it has not been since 1922. One of my predecessors, Henry Grattan, voted against the Act of Union and I will be voting against this act of union because it is not in the interests of this country.
Let us look at the Scottish case. British Caledonian had 6,300 employees and 27 aircraft. It disappeared. There are no services comparable to what we do in the north Atlantic and I want to praise Aer Lingus for developing those routes. About 400,000 people per year fly between Scotland, which has a population of 5.3 million, and the US. We have a figure of 2.5 million, which is six times as much for a slightly smaller population - about half a million fewer people. Aer Lingus might have been the cartel airline in the European airlines cartel but on the north Atlantic, it has developed distinctive and valuable products for the development of industry in this country. I hope the Government's group will include references to tourism and the industrial sector. The availability of far more connectivity and access to Ireland from the US than is available to Scotland has been a major part of the development of the smart Irish economy.
I worry that the object of British Airways in this is to re-route all the traffic through Heathrow. Heathrow has grown since 2008 by 8% and Gatwick has grown by about 3.7%. Stansted is down by 20.1% while Luton is down by 4.7%. Heathrow keeps saying that it is full. It keeps on expanding. British Airways is Air Heathrow, that is what it sees Aer Lingus as doing and that is not in our national interest. We need to keep that brand there. This is a great product on the north Atlantic that has been a huge development aid to this country and it is not worth giving it up for €300 million. A figure of €300 million is two days' public expenditure. It is not worth giving up all of this for €300 million.
I also commend the Minister for making himself available in respect of this important issue at such short notice to give the Seanad a chance to express its views even at this early juncture. What the Minister is hearing around the room today is the Seanad's unanimous rejection of this attempt by what is effectively British Airways to take over Aer Lingus, our national airline. We were not been served well in this country when we trifled and dallied with the disposal of State assets. It has not served us well and we should learn from that. People sometimes say, "Let's see how it works". We know how it works. We saw how it worked with our sugar beet industry. We lost all our jobs and factories and the Carlow sugar beet plant is now an eyesore growing buachalláin and we as an agricultural country import sugar. It is a disgrace. We saw how it works in respect of Eircom. Everyone was going to make a small fortune and cash in their shares. We sold out Eircom and as a result, one cannot get broadband or a telephone signal in half of the country because the vultures asset stripped.
I believe this is what is planned here. Aer Lingus is most valuable because of its Heathrow slots. It is an attempt to expand traffic into Heathrow - not into Dublin and not into Ireland. We must put the interests of our citizens, communities and country first. A figure of €300 million is a pittance compared to the strategic importance of our national carrier and the slots at Heathrow. The only people who will benefit from this are possibly a few members and directors on the board who stand to make a windfall from their own shareholdings but it will not benefit Ireland in terms of jobs, business, tourism and its strategic importance. We must put the country's interest first not just for today or tomorrow but for the long term.
I remember the first time I got on an Aer Lingus flight when I started work. One would need a loan from a credit union to be able to afford to fly out of the country. It cost £240 in 1978. We have gone past that and what we must now do is protect Irish interests because selling off State assets was never a good idea. We have seen the examples where it does not work. It is short-term gain for a long-term strategic loss to the country and the national interest.
Senator White has no forum here. I am not brooking any interference. The Minister must be released from here at 2.55 p.m. so if the House is agreed, I will call upon the Minister to conclude. Is that agreed? Agreed. I am caught by the Order of Business.
I repeat that I am glad to have this opportunity to address the Seanad on what I know to be a very important matter. I thank everybody for their contributions. I must repeat that I must take great care in what I say at the moment. There are a number of matters that have been brought up about which I am not in position to comment at this time.
Connectivity is a common theme as Senators Darragh O'Brien, O'Neill, Barrett and Whelan have touched on it. The travelling public and the economy have benefited greatly from the very good competition and connectivity provided for air services in and out of Ireland. Maintaining competition and connectivity is a key issue for the Government and will be given appropriate consideration. I note what Senators Whelan and Barrett said about the importance of competition on important routes for our country.
Aer Lingus's Heathrow slots were raised by all Senators. These slots are a right granted to the airline. Airport slots are not owned by airlines as such and are certainly not owned by governments or States. However, at congested airports such as Heathrow, a secondary market has developed that has allowed airlines to trade slots with each other to meet their changing business needs. On this basis, such slots are very valuable. In respect of any potential disposal of slots by Aer Lingus, a specific mechanism was built into the company's memorandum and articles of association at the time of the initial public offering. It is very important to be clear regarding what those conditions are.
Where a resolution by shareholders is called for on a slot disposal, the voting threshold to prevent such disposal must be greater than the percentage of the company shares held by the Minister for Finance plus 5%, or 25% if greater. In other words, with the current State shareholding of 25.1% that threshold is 30.1% of the votes cast. The ability of the State shareholding to block a disposal of slots is therefore not guaranteed under the existing mechanism. Furthermore, the mechanism relates only to a proposed disposal of slots. Aer Lingus does not require any shareholder approval to change the routes for which it uses those slots. As all Senators have said, connectivity remains critically important for Ireland as an island nation. Heathrow remains a very important hub for connectivity purposes, but as it becomes more congested other hub options are becoming available. In addition, the number of destinations that can be reached directly from many of Ireland's airports has increased over the years.
The State retains a significant but nonetheless minority shareholding in Aer Lingus with just over 25% of the shares. The Government does not control the company, nor does it appoint the chairman or a majority of the board members. In 2012, the Government included the shareholding among the assets to be sold under the State assets disposal programme. However, the Government agreed that the shareholding would only be sold when market conditions were favourable and if acceptable terms and an acceptable price could be secured. Such circumstances did not arise during the period of the EU-IMF programme and the State has remained as an active shareholder in the company. Following a third hostile bid for Aer Lingus by Ryanair, the Government indicated in late 2012 that it would not be prepared to sell the shareholding in circumstances which could significantly impact on competition and connectivity in the Irish market. The previous two takeover bids were opposed by the previous Government on similar grounds. Such considerations would also be foremost in our minds in the Government's consideration of this matter.
NewERA has conducted a procurement process for both financial and legal advices to help the steering group in its work. This is a specialist and complex area of work and the aviation industry is by its nature a global business. Given the importance of the matters at stake, it is important that the Government has the best advice available during this process. I understand that the contracts for this engagement have not been fully signed up by all parties but I believe the engagement process will be confirmed later today. Some of the names have been reported in the media. Credit Suisse and IBI Corporate Finance, which is part of the Bank of Ireland Group, are the selected financial advisors and McCann Fitzgerald is the selected legal advisor.
As I said at the outset, I must be constrained in regard to how I can refer to this matter. What I wanted to do at the earliest point of convenience to the House was attend to outline the framework within which this matter has been dealt with previously so that all Senators can be clear about the care with which I am dealing with this matter and also on the way in which it will be treated.
The Senator cannot tell the person in possession of the Chair that he or she is not in a position to do something. She can raise her matter with the Committee on Procedure and Privileges or on the next Order of Business. In meantime, I suggest she takes it up with her group leader.