The former chief executive of AIB Group, Mr Tom Mulcahy, has been appointed chairman of Aer Lingus by the Government. He succeeds the late Mr Bernie Cahill, who died suddenly on August 17th last.

Mr Mulcahy retired from the State's largest bank in July after seven years in its highest post.

A career banker new to the Aer Lingus board, he has never worked in aviation. The appointment is for three years.

A forceful individual who grew the bank's annual profits to €1.25 billion (£980 million) in 2000 from €372 million in 1993, Mr Mulcahy will face a significant challenge at the airline.

Its recent performance has been marked by losses, strikes and the sacking in June of its chief executive, Mr Michael Foley, after a board subcommittee upheld two complaints against him of sexual harassment. Mr Foley denied the allegations.

In addition, a trade sale has been mooted after the postponement of a stock market flotation.

The Minister for Public Enterprise, Ms O'Rourke, said the Government was honoured that Mr Mulcahy accepted the post. Regarded as a very capable businessman, it is thought he was first on a list of five candidates. He had been approached early this week.

Mr Mulcahy is expected to meet Ms O'Rourke and the Secretary General of the Department of Public Enterprise, Mr Brendan Touhy, today.

Ms O'Rourke is likely to appoint a deputy chairman from within the company's board soon. Mr Cahill's death left the two most senior positions in the airline vacant because there had been no deputy.

Informed observers believe the most obvious candidate for the post of deputy chairman is Mr Paddy Wright, a former Jefferson Smurfit executive who is also chairman of the RT╔ Authority.

Mr Wright was on a board subcommittee established to recruit a successor to Mr Foley.

That appointment will be among the first tasks facing Mr Mulcahy. The process is well-advanced and some believe an appointment will be made within a month. However, the decision rests with Mr Mulcahy.

It is understood that there was a shortlist of two candidates after Mr Cahill conducted interviews this summer. Both candidates are said to work outside the aviation industry in the Irish private sector. One is believed to have been interviewed for the post when Mr Foley was appointed.

From Carrick-on-Suir in Co Tipperary, Mr Mulcahy (60) has been described by former colleagues as a direct, hard taskmaster. He will have to drive through a radical recovery programme to turn the airline around this winter and in summer 2002.

The company's board is expected to adopt that programme at its next meeting on September 27th. Managers are said to be working on drafts of that plan for presentation this week to the airline's executive.

After strikes, foot-and-mouth and a downturn in demand on lucrative US routes, Aer Lingus reported a €38 million loss on sales of €534 million in the first six months of the year.

It is understood the losses continued in July and that senior managers in the airline believe its trading difficulties will continue into next year.

There is concern that a prolonged economic downturn could create yet more difficulties for the company next year. If trading deteriorates, the plan will be amended.

The discussions on a recovery will centre on use of the company's fleet. This means Aer Lingus will look at the scheduling of flights and their frequency.

While it is likely to withdraw from a small number of European routes, there is a reluctance to abandon any element of its US business.