Three Reasons Why The State Should not Sell Its Aer Lingus Shares

Aer Lingus is not a loss-making company. It is a profit-generating company to the tune of 40-70 million Euro annually. The Government currently owns 25.1% of Aer Lingus shares (down from 85% in 2006 when the remaining 15% was owned by the employee trust) and is being offered 1.36 billion Euro for them from the blandly-named International Consolidated Airlines Group (AIG) – consortium formed by British Airways and Air Iberia.
The idea is that selling the Government’s shares would generate 1 billion Euro for the State in a time of dire need. However, this is a short-sighted way of viewing the issue.

You can only privatize something once. The State will get 1.3 billion Euro for its shares in Aer Lingus after which it will be out of airlines to sell. The total profit will remain 1.3 billion for all time and the price will be any stake at all in the national airline. Since Aer Lingus is turning a profit, this isn’t actually a very good deal. A rough projection of Aer Lingus’s earnings indicates that the company would generate a profit of 1.3 billion over 20 years – after which the State would continue to part-own the airline and to profit thereby, in short, have its cake and eat it, too. Instead of 1.3 billion Euro minus an airline, we would have 1.3 billion plus an airline. Of course, as the State now owns only 25% of Aer Lingus shares, it would not reap the totality of expected future profits thereby extending the time to earn 1.3 billion to ca. 80 years. However, this is an argument for recuperating State shares in order to maximize profit rather than for divesting further. For a State to sell a profitable enterprise is akin to a company pawning its manufacturing equipment. The last thing a cookie manufacturer would sell would be its ovens, the last thing a printer would sell would be its printing press, and the last thing a country should sell is its profit-generating infrastructure, as it is a self-beggaring policy that decidedly cuts off the source of future profits.
Furthermore, while 1.3 billion Euros certainly sounds like a lot of money, our finances are so miserable that even such a sum will not make a pivotal impact on them. According to this year’s budget Ireland will pay 8 billion Euro just to service the national debt. Thirteen billion will be spent on health care and 8 billion on education, neither of which ever seem to materialize despite the heavy expenditure. An additional 19 billion Euro will be given out in social protection. Compared to these sums 1.3 billion starts to relativize rather quickly. The Government’s biggest sources of revenue are income tax (18 billion Euro), VAT (11 billion Euro) and corporation tax (4.5 billion Euro) – 1.3 billion just isn’t a figure that makes or breaks this budget.

2. Selling Aer Lingus is Counter to our National Strategic Interest

We live on an island. The options for travelling to and from it are limited. In fact, we are entirely at the mercy of mass transport providers when it comes to something as vital as entering or leaving the country. It is not in the national interest that such an important part of living and working in Ireland be left entirely in the hands of private business (especially foreign-owned private business) that may or may not provide adequate service.
In the particular context of the proposed sale to IAG, we need to consider another important point vis-à-vis national interest. RyanAir (which is based in Fingal) currently owns 29.82% of Aer Lingus shares. Thus far, the UK Competition and Markets Authority as well as British courts have responded favourably to a complaint from Aer Lingus that RyanAir has used its position as a large shareholder to harass and block Aer Lingus’s operations, ordering RyanAir to divest itself of all but 5% of its shares. If Government were to sell its shares to IAG and IAG were to also purchase RyanAir shares as they to come onto the market, IAG could acquire 49.92% of all Aer Lingus shares (other shareholders own only ca. 2-3% each), meaning it will have effectively taken over Aer Lingus, with only 0.08% of shares needing to be acquired to own 50%. Were that to transpire, a company that is currently 54% Irish-owned would become 49.92% privately owned by a British-Spanish airline conglomerate.

3. There is no Such Thing as a Permanent Guarantee that Service and Wages will not Deteriorate Following Sale

I’m a frequent flyer and trust me, it’s a jungle out there. I actively try to fly with Aer Lingus whenever possible, because the airline still offers some of the most comfortable air travel around at very good prices. Many of its international competitors have developed absolutely cut-throat strategies in which the most marginal of shareholder gains justifies deep cuts in customer satisfaction and employee benefits. It’s the only way to squeeze unrealistic profits out of a company and however benevolent IAG’s intentions at the moment it is nearly inevitable that such will be the fate of Aer Lingus in the long run. All of the ‘guarantees’ that IAG has given regarding maintenance of Aer Lingus’s Heathrow slots and union agreements are not – and cannot be – cast-iron forever-and-ever agreements. Indeed, the agreement on the Heathrow slots will only last five years. Once those five years are up, the rest of eternity will continue to beckon – slot-less.

There are Other Options to this Ill-Advised Sale

The government could buy up RyanAir shares as they come onto the market returning Aer Lingus to a more or less publicly-owned and operated company. If the IAG offer is accurate than this would cost the State ca. 1.5 billion Euro and could be achieved by renegotiating debt servicing with the EU to allow Ireland to pay a mere 6.5 billion instead of 8 billion back this year. Since Aer Lingus are a good long-term investment that will help Ireland generate more profit (to pay back more debt) and the airline is a major strategic importance to the Irish economy in that it provides a very reliable and cost-effective way of leaving and entering the nation, there is really no good reason why this request should not be acceded to.
We are often looking for Irish success stories and Aer Lingus is one of them. The company pays its employees well – something of huge benefit to the economy in general and certainly the mini-economy of Fingal – runs a decent service in the face of huge competition and still turns a profit. We should neither complain about it nor sell it, but rather think about what they are doing right and how we can expand that to other parts of the economy.