The chief executive of Aer Lingus has denied allegations that he sexually harassed two female employees. Sources close to Mr Michael Foley said he will not be stepping aside from his position and will take legal action to clear his name.

The first allegation faced by Mr Foley was made against him by a senior member of the airline's cabin crew in late February. It related to an incident that was said to have occurred in his office four months previously. The complaint was made directly to the chairman of the company, Mr Bernie Cahill, prior to a monthly board meeting.

The second complaint - in late March - was also made directly to Mr Cahill prior to a board meeting. This allegation was made by a member of the head office administrative staff and did not relate to any specific dates and was more general in nature.

Mr Cahill has appointed two independent directors, Dr John Keane and Ms Rose Hynes, to investigate the allegations. Dr Keane is a consultant opthalmic optician with the Midlands Health Board and friend of the Minister for Public Enterprise, Ms O'Rourke. Ms Hynes is a lawyer with AerFi Group, the former GPA, which was recently bought by Debis AirFinance.

The two directors have been looking into the allegations since the first complaint was made in February. They are expected to report back to Mr Cahill within two weeks and the chairman will then decide what action - if any - needs to be taken.

Sources close to Mr Foley said yesterday that he expected to be exonerated by the inquiry. Regardless of the outcome of the internal investigation, the sources said he would be taking legal action against the individuals who made the allegations. "He wants them to have a taste of their own medicine," said the source. Mr Foley is said to be furious over the leaking of the allegations to the media.

Mr Foley joined Aer Lingus in September last year from the brewer Heineken, where he was chief executive officer of its US operation. He was immediately faced with an industrial relations crisis over whether or not the company should recognise the right of the IMPACT trade union to negotiate on behalf of cabin crew. More than 1,400 air hostess and stewards had defected from SIPTU to the rival union the previous May. The inter-union rivalry became the backdrop to months of unrest as all the airline's employees from baggage handlers to pilots sought pay increases.

There were several strikes and last February Mr Foley stepped in over the head of Mr John Behan, the head of group change and restructuring, to take over negotiations with the unions. Mr Behan, who had been with the company for eight years and was one of its most senior executives, subsequently left the group.

Mr Foley's intervention and his decision some months earlier to grant IMPACT negotiating rights was seen by some observers as a deliberate attempt to change the company's industrial relations culture. Mr Foley had made it clear that he considered this a significant obstacle to the implementation of change.

Mr Foley's style is described as direct and forceful. He is understood to have upset a number of executives when he announced significant management changes last March.

Ms O'Rourke - who has political responsibility for Aer Lingus - said yesterday that she was aware of allegations against a senior executive at the airline. She said that she was awaiting the outcome of the report commissioned by Mr Cahill.