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Bloody Sunday, election, Irish, Ireland, British, Ulster, Unionist, Sinn Féin, SDLP, Ahern, Blair, Irish America

The Government should sell its stake in Aer Lingus

(Editorial, Sunday Times)

The decision by Aer Lingus to give up its Shannon-Heathrow route is causing consternation for government ministers. Industry and tourism interests in the mid-west have reacted to the news with predictable anger but their protests threaten to distort what is, on the face of it, a straightforward business decision. Aer Lingus is now a privately owned company. Its management is charged with maximising returns to shareholders. Having crunched the numbers, they have concluded that the airline's interests are best served by setting up a new base in Belfast where it will develop a business using both the aircraft and the Heathrow landing slots formerly enjoyed by passengers in Shannon.

Of course, things are never that simple. The situation is complicated by the presence on the shareholders' register of two parties with very different agendas. Ryanair, a 25% shareholder, has seen the fury in Shannon and, typically, has decided to raise the temperature. It made great play of the fact it offered to join forces with the government, which controls 25.3% of Aer Lingus, in an effort to force the airline to roll back on its decision. It made even more of the fact that the government, which saw the mischief-making publicity stunt for what it was, ignored this request.

Perhaps the government remembered that earlier this year Ryanair, in an effort to appease European Union concerns about its attempted takeover of Aer Lingus, offered to sell up to two-thirds of the airline's slots at Heathrow. So much for Ryanair's concern about the national interest.

What cannot be dismissed so easily is the charge that the government now finds itself in a political stew entirely of its own making. By privatising Aer Lingus but maintaining a significant stake, it sought to leave the impression that no important strategic decisions could be taken by management without its knowledge. Given the importance of balanced regional development, cutting a vital and long-standing transport link between the west of Ireland and an international gateway airport certainly falls into the "strategic" category.

Then there is the matter of the prospectus issued to investors when Aer Lingus was put up for sale last autumn. It stated clearly that the government regards landing slots at Heathrow airport as being of strategic interest to Ireland. That statement was intended to appease trade unions and ward off fears these valuable slots would be sold for cash by the privatised Aer Lingus. What now reads like a form of guarantee is being used to pressurise the government to force Aer Lingus into a retreat on Shannon.

There is a good reason why this cannot be done. Aer Lingus, because of the nature of its business, is one of the most visible companies trading on the stock market. It would be catastrophic for its long-term health and the reputation of a capital market already tarnished by the DCC/Fyffes affair if the state was seen to be strong-arming management into reversing a decision made for sound commercial reasons.

If the government wants to avoid holding another losing hand when Aer Lingus takes its next unpopular strategic decision, such as abandoning transatlantic flights to Shannon, it should do the logical thing and sell its stake in the airline as soon as it is practicable.

None of this, however, helps Shannon. Pressure groups are busy investigating whether a legal challenge might be mounted against Aer Lingus's decision, centred on the ownership of those landing slots. But this issue should be settled by the market and not in the courts.

If the demand for flights between Shannon and London Heathrow is as popular as we are now led to believe, then logic dictates that another operator with Heathrow access will move to fill the gap created when Aer Lingus abandons the route next year. If they don't, Shannon's supporters will have to ask themselves why.

August 18, 2007

This article first appeared in the Sunday Times on August 12, 2007.