Aer Lingus could be floated on the stockmarket as early as next year, or at the latest early in 2001.

The Minister for Public Enterprise, Ms O'Rourke, in her initial reaction to the group's report on a strategic alliance, has given strong backing to the idea of a public flotation as a way or raising some of the money needed for investment in the years ahead.

With the Tanaiste, Ms Harney, also backing the flotation option, sources believe an initial public offering of the airline's equity could take place towards the end of 1999.

The alliance negotiations with British Airways (BA) and American Airlines (AA) will start in earnest after the Government approves it. Ms O'Rourke has asked consultants Salomon Smith Barney to report to her on the airline's proposals and is due to get back to Aer Lingus before the end of June.

In turn, provided the Government gives the go-ahead, this will clear the way for further negotiations between Aer Lingus and the Oneworld Alliance, of which BA and AA are the leading members. These could be completed by this autumn.

Regulatory clearance would then be required for aspects of the alliance, meaning that it would not come fully into force until some time in early 2000.

One issue the Government as shareholder must clarify, is whether to sell a 10 per cent stake to BA and AA as part of the alliance. BA/AA took such a stake in Iberia of Spain when it joined the Oneworld alliance.

But Ms O'Rourke indicated yesterday that she personally had reservations about selling an initial 10 per cent stake to the strategic alliance partners and favoured moving directly to floating the company's shares to raise equity.

SIPTU has also raised serious concerns about the proposal to sell shares to BA/AA. The union said yesterday that it could affect its attitude to the entire alliance process.

Aer Lingus says that, as things stand, it will need to invest £400£500 million (€509E635 million) over the next five years in fleet renewal.

Given that it hopes growth will accelerate as a result of the alliance, this investment level could accelerate further.

It is understood that another US airline, Delta, put in a strong late bid to become Aer Lingus's partner. Delta would also have been a strong partner in the US for Aer Lingus. But a key factor is that the BA/AA alliance gives Aer Lingus an advantage in traffic moving eastwards from Ireland.