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

headline

(by Brian Carroll, Sunday Times)

Exaggeration, over-reaction and scaremongering are some of the milder charges levelled at companies in the Shannon area that are raging at Aer Lingus's decision to stop flights from the west to London Heathrow.

So when a survey was released on Friday suggesting that 55% of companies in the mid-west of Ireland would lay off workers if the Shannon-Heathrow airlink was not restored, it was greeted with more sighs on the eastern seaboard.

Shannon-based businessmen such as Ken Sullivan, though, insist that the survey, conducted by Ibec, the employers' lobby group, gives an accurate picture. "This isn't scaremongering," Sullivan says. "This is a vital piece of infrastructure we have lost."

Sullivan is general manager of Element Six – formerly De Beers – which employs 630 people in Shannon. He says the future of the company is now uncertain, because 90% of its travel is routed via the Shannon-Heathrow service.

Shannon is the worldwide headquarters for Element Six companies in South Africa, Sweden, the UK, Holland, China and Ukraine. All the group's finance, legal, sales and marketing activities are based there.

Last year, staff took 1,000 journeys through Heathrow with customers taking a further 1,200 trips via Heathrow to visit Element Six in Shannon.

Couldn't they fly to Gatwick, which has 90 airlines serving 200 different destinations, instead? "We can get people to fly to Gatwick, but then they have to get the Tube across London to get connecting flights out of Heathrow," Sullivan says. "This means you lose a half day or a day."

The 200 companies surveyed by Ibec racked up 13,860 employee journeys on the Shannon-Heathrow route last year, and 45,595 customer flights.

"If our customers fly into Heathrow and then have to fly to Dublin and take a four-hour car trip to Shannon, how long are they going to do that for?" Sullivan asks. "How long before you have to move your sales and marketing division?"

A similar tale came from Dromoland Castle up the road from Shannon, which has postponed a €30m investment, for which planning permission was received just last week.

"This is not scaremongering, we are being realistic," said Mark Nolan, its managing director.

Like Doonbeg golf resort, which has suspended plans for a €50m expansion, Nolan's fears are based on estimates by tourism chiefs that the loss of the Heathrow route will mean 50,000 fewer tourists in the Shannon region next year.

No matter how strong a case mid-west businesses make, it seems nobody is prepared to overturn Aer Lingus's decision: not the company, not even the government, which is a 25% shareholder. Local industry and its representatives vow to fight on – but do they now have any chance of success?

The taoiseach once infamously lambasted the top three executives in Aer Lingus over their plans to stage a management buyout of the company.

They were interested only in "stealing the assets" and "shafting" the workers, Bertie Ahern declared. Four months later, in September 2006, he was holding the door open for every private investor in the world who wanted a share of the national airline.

One of the first was Michael O'Leary. The Ryanair boss spent £234m snapping up 25% of Aer Lingus before the government was able to get the European Union to block his attempt to gain total control of the airline.

O'Leary was typically apoplectic over the government's intervention in the affairs of a publicly listed company. Now, in a quirk of fate, Ryanair is calling on the government to intervene and it is the cabinet that is claiming it would be wrong to interfere with the workings of a publicly listed company.

Willie O'Dea, the defence minister, has called on the government to persuade Aer Lingus to change its decision, but his colleagues – Noel Dempsey, Dermot Ahern and Mary Hanafin – each said last week that the airline's decision was a commercial one that they could not change. Crucially, Hanafin's statement was issued on behalf of the government.

The situation is embarrassing for O'Dea, but he has been here before – on taxi deregulation and the closure of Barrington's hospital – and has ruled out resignation, saying it is not in his constituents' interest.

His difficulty has been O'Leary's opportunity. Ryanair quietly spent another £27m last week upping its stake in Aer Lingus to 28%. It is offering to join its stake with the government's 25% to force an Aer Lingus u-turn. With the support of the employees of Aer Lingus – who own 12.5% – they would have enough votes at an extraordinary general meeting.

O'Leary has forwarded two motions to the Aer Lingus board, the first a request to preserve the Shannon–Heathrow routes, the second suggesting Aer Lingus reduce or end its Dublin-Gatwick service and give these slots to Belfast. The fact that Ryanair already operates a Gatwick service out of Dublin and would benefit tremendously from such a move goes unmentioned.

Even though it cannot force Aer Lingus to backtrack, Ryanair is winning because O'Leary has put the squeeze on Bertie Ahern, embarrassed the government and added fuel to a public debate that was already doing damage to the Aer Lingus brand. One multinational company, along with Limerick city council, has called for a boycott of the airline.

Ryanair will be the ultimate beneficiary anyway, as it already offers three routes to London from Shannon and plans to add three flights a day to fill the gap left by Aer Lingus.

"The battle is not over by any means," said John Brassil, chairman of Shannon Development, part of the Shannon Alliance, an umbrella body of mid-west interest groups. It is considering a legal challenge based on Aer Lingus's memorandum of association, which undertakes to protect the Heathrow landing slots. But sources in the Employee Share Ownership Trust (Esot) believe this clause is a red herring.

"The wording can be dissected and interpreted a number of ways," one said. "What is a slot? Is it a point in time or is it a two-way departure and arrival? Is the slot still protected if you are flying into it from Belfast rather than Shannon? It wouldn't form the basis of a legal case. It will come down to the EGM and how the government votes."

The Aer Lingus board's EGM has to be held by October 9. If a compromise hasn't been reached by then, the government will be sitting uncomfortably holding the casting vote on whether the Shannon route is shut. When Aer Lingus floated, the government retained a 25% stake, ostensibly to protect the national interest. The remainder was bought through fund managers, about 45% of whom came from the UK, 14% from America, 20% from the rest of the world and only 20% from Ireland. This cast of investors is unconcerned about Irish national interests, never mind Shannon.

The attorney general has advised the government that any intervention could be met by a legal challenge. The Aer Lingus share price would fall and the only one left rubbing his hands would be O'Leary.

Seasoned Ahern watchers expect that the EGM will never take place. The taoiseach will glad-hand Aer Lingus into some kind of compromise in advance. It has leased two Heathrow slots to other airlines and one lease is up in 2009. One compromise would be for Aer Lingus to run a reduced Shannon-Heathrow service until 2009, and then add the leased slot once it is freed up.

Dermot Mannion, the Aer Lingus chief executive, did not shut the door on this possibility when he met with the mid-west's business leaders and politicians on Friday. He said Aer Lingus would look at the "competing opportunities" of Shannon and other airports for that leased slot.

In return for such a compromise, Shannon airport would have to offer more favourable fees to Aer Lingus. There is already an offer from the Shannon Airport Authority worth €4m a year extra. Whether Shannon could sustain such a deal is another matter. In the past two years, five airlines have pulled out of Shannon precisely because of such sweetheart deals . . . but deals cut with Ryanair, not Aer Lingus.

The Shannon debacle begins and ends with Ryanair and the race to the bottom, which low-cost airlines started. One of the three executives whom Ahern scandalously accused of wanting to steal the assets of Aer Lingus was Willie Walsh, who has since left the top job in Aer Lingus to become chief executive of British Airways, having turned around the national airline by changing it into a low-cost carrier. Where before you got a free drink and could pay a premium to travel business class on Aer Lingus, now you pay for a cup of coffee in steerage and £5.50 to bring a bag on board.

The impact has been two-fold. On the one hand Aer Lingus has gone from being a state-owned national carrier with crippling losses post-9/11, to a private, profitable low-cost airline. But it now makes less money per head, particularly on business routes such as Shannon-Heathrow. There are no more business-class, £140-a-head tickets. It is bums on seats (71% of them are full), but less expensive bums.

The Shannon-Heathrow route with about 330,000 passengers a year was profitable, but there was no room for improvement. In fact, the UK Civil Aviation Authority says traffic on the Shannon-Heathrow route has been static for seven years. To maximise profits, Aer Lingus had to turn to a location offering a huge hinterland of potential customers. Belfast was chosen, but Birmingham was also considered. Before announcing the £102m Belfast operation, Aer Lingus studied setting up a European hub out of Birmingham airport. Had that deal gone through, the Heathrow slots would have been unaffected, but Aer Lingus headquarters would have been moved outside the state. Would that have been in the national interest? Either way the Joe Duffy Liveline programme would certainly have been hopping.

Mannion has denied getting any sweet deal to set up in Belfast. But Aer Lingus does get access to 1.2m customers versus 330,000 in Shannon. The airline also hopes to shave its costs as an employer.

While a captain operating out of Belfast will be offered £76,600 a year, compared with £66,400 in the south, he will get a less favourable pension. Such terms have precipitated a strike by the pilots scheduled for Tuesday and Wednesday.

East coasters point out that Shannon is connected to Stansted and Luton, which between them have 54 airlines serving 240 destinations.

David Learmont, an aviation expert, says most other airlines are shifting out of overcrowded Heathrow to Paris, Amsterdam and Frankfurt. "I can't understand what all the fuss is about in Shannon," he observed.

But Dave Silke of Galway-based computer company Nortel, which employs 300 people, argues that most European connections are still through Heathrow.

"This has an impact directly on us in terms of our customers being able to come to us, and us going to our headquarters in Maidenhead, Berkshire," Silke said. "We are not exaggerating or scaremongering. This is the most significant issue facing our business."

August 18, 2007
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This article first appeared in the Sunday Times on August 18, 2007.

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