Aer Lingus is expected to record a net loss of £20 million (€25.39 million) this year. Its financial position is now far more serious than previously indicated.

The board was informed of the airline's worsening finances at its monthly meeting yesterday. It heard that the core business will lose £30 million, but those losses will be offset by certain other revenue gains.

Directors heard air traffic was down 10 per cent, due to the foot-and-mouth crisis and the slowdown in international economies, including the US. Industrial disputes and pay rises had also taken their toll on the company's finances.

Last April, a special board meeting was told that profits this year would fall to £15 million from £60 million in 2000. And earlier this month the Minister for Public Enterprise, Ms O'Rourke said that, even if bookings recovered in the second half, the airline would record losses this year.

Yesterday the board was told that there had been a significant drop in revenues, a substantial rise in fuel costs and that other factors were also adding to difficulties.

The company's financial crisis will further compound its problems in trying to attract an investor and to meet equity requirements for new fleet.

Meanwhile, the airline's company secretary Mr John O'Donovan has become acting chief executive. Aer Lingus has set up a board subcommittee to recruit a successor to Mr Michael Foley.

Mr O'Donovan, who is also group finance director, has told the board he will not be putting his name forward to succeed Mr Foley.

In an obvious reference to the circumstances in which Mr Foley's contract was terminated, Mr O'Donovan told yesterday's board meeting he did not wish to expose his family to the glare of media coverage that might come with the job.

He had been seen as the front runner within the company to replace Mr Foley, but the favourite would now appear to be operations manager Mr William Walsh, who is a former chief executive with Futura.

Mr Walsh was also quite near to Mr Foley and helped broker the deal with Aer Lingus cabin crew earlier this year.

The board appointed a subcommittee under company chairman Mr Bernie Cahill to "manage the process" of recruiting a permanent successor to Mr Foley. The position will probably be advertised externally but most observers feel it is unlikely there will be many applications for a job which has had four incumbents in as many years.

On the industrial front, there is some good news with the company's managers close to an agreement with the company and pilots continuing in negotiations on productivity. An independent facilitator is currently mediating between the two sides, which will then return to the company's internal arbitrator, Mr Gerard Durkan SC, for a final determination on pay.

Even if talks break down it is unlikely industrial action would follow during the peak tourist season.