The Department of Transport expressed concern about a possible conflict of interest over the sale of an Aer Lingus subsidiary to a group linked to the subsidiary's former chairman. But the sale was sanctioned after the Department clarified that the Aer Lingus board had approved the sale after dealing with the "conflict of interest issue".

The Department found the sale was in line with the Aer Lingus recovery programme and that the guidelines for the disposal of State assets were complied with. Aviation Services Ireland (ASI) was sold in June to Custom House Financial Services.

A former chairman of the subsidiary, Mr Gerry Kelly, is an investor in Custom House Financial Services. The subsidiary was one of three put on the market earlier this year by Aer Lingus.

The airline is selling its Spain-based charter business, Futura, and is believed to be near a deal with a management group. It is also selling Timas, the Irish operation of the Galileo booking system.

Records released under the Freedom of Information Act show that the then Department of Public Enterprise was informed of the sale of ASI in an aide-mémoire from Aer Lingus on May 30th. The subsidiary provides revenue accounting services for airlines. It had net assets of €101,908 at the time of the sale and the consideration is believed to have been around €600,000.

The aide-mémoire said the offer from Custom House Financial Services was the highest. Offers were received from six parties, although one decided not to proceed and Aer Lingus did not continue its engagement with another on the basis of the price offered.

While four remaining parties were given similar levels of information and access to management, the aide-mémoire said the syndicates representing three of the four top bidders included executives in ASI or Aer Lingus.

Of Custom House Financial Services, the aide-mémoire said: "The investors in this company are a number of individuals including one person who is currently an accounting executive in Aer Lingus who is a director and was previously chairman of ASI. He ceased to be chairman of ASI when he expressed an interest in acquiring the company."

A separate memo shows that an official in the Department telephoned the Aer Lingus executive who handled the sale, Mr Brian Wheatley, on the day the aide-mémoire was received.

The memo said: "In response to my query about a possible conflict of interest involving one of the proposed investors in ASI (Gerry Kelly) who was also a chairman/director on the board of ASI and an accounting executive in Aer Lingus, Mr Wheatley said that the matter had been discussed by the board at its recent meeting.

"Mr Wheatley explained that ASI was a small company comprising of two board members, Gerry Kelly as chairman and himself, Brian Wheatley. Before the sale process commenced, Greg O'Sullivan, secretary and financial controller in Aer Lingus, was made a director and chairman of the ASI board and Gerry Kelly, while remaining as a director, had no involvement in the sale process. All procedures involving the board relating to the sale were dealt with by Greg O'Sullivan and Brian Wheatley."

It added: "The board decided that, having regard to the clean sale process that was undertaken in which Gerry Kelly had no involvement, they are satisfied that there is no conflict of interest."