The Government says it is "working towards" a part-privatisation of Aer Lingus in the first half of the year, if market conditions are right.
In spite of the widely-held view that Taoiseach Bertie Ahern has no appetite for a flotation before the next general election, work has already begun to prepare the ground for a possible sale with renewed efforts to deal with the €300 million deficit in the State airline's pension fund.
The privatisation question is hugely politically sensitive for the Government in the run-up to new pay talks because unions in the airline are resisting privatisation. Informed sources acknowledge the view that the Government wants to avoid a voter backlash against privatisation in north Dublin in the election, which must take place before mid-May 2007.
But the same sources say also that the opening next April of 18 new routes from Dublin by Ryanair will increase pressure on Aer Lingus, whose chief executive Dermot Mannion wants €2 billion for new planes. Failure to address the funding issue would leave Aer Lingus in an even more vulnerable position in a year's time.
The Government's corporate finance advisers UBS and AIB Capital Markets said the pension issue will have to be resolved before any sale in a report last month that called for an initial public offering on the stock exchange in the first six months of the year.
With a Government bail-out unlikely, one suggestion is that new Aer Lingus shares will be issued before privatisation and placed in a trust to pay at least some of the cost of the deficit.
"We've received the report and we're studying it," said a spokesman for Minister for Transport Martin Cullen of the analysis by UBS and AIB. Asked whether the Government was prepared to follow the advisers' recommendation to conduct an initial public offering in the short term, Mr Cullen's spokesman said ministers were were working to that agenda.
"If the market conditions are right, the answer is yes. That's what we're working towards."
Privatisation will be easier because new legislation will not be required to advance the process. But while Fianna Fáil and the PDs agreed last May on privatisation, the Cabinet decision to formally trigger the process has yet to be made.
With new pay talks imminent, it is likely that the Aer Lingus question will feature in the discussions.
If the Government does push ahead with the process, it is likely to retain a stake of some 25 per cent in the airline. Sources say this would be sufficient to protect the airline's ownership of landing slots at Heathrow Airport in London, an issue seen as crucial for international access to Ireland.
