Without a chief executive in place, the confident predictions from senior managers about Aer Lingus's future are missing a certain authority, writes Emmet Oliver.

Until the Government makes public its decision on Aer Lingus, the airline's chairman, John Sharman, appears to be operating on a strict "need-to-know" basis.

Yesterday Sharman, a London-based expert in aviation finance, was reluctant to be drawn on a range of subjects concerning the airline's future.

He refused to comment on the process of selecting a new chief executive, although he firmly denied any suggestion he had taken the "scenic route" to selecting the new boss.

He also declined to make a prediction about the airline's likely profit performance for this year or its expected operating margin for the period ahead.

Sharman, who will remain chairman until at least next March, was also keeping quiet about the best way for the Government to sell a stake in the airline.

While his guarded approach may be understandable in the current climate, it contributed to the anti-climatic air surrounding the airline's 2004 results.

Without a chief executive in place, the confident predictions from Sharman and other senior managers about what lies ahead for Aer Lingus lack a certain authority. Ultimately, the big strategic decisions for Aer Lingus will be taken by the chief executive, in conjunction with the board.

Most observers believe Dermot Mannion, the Sligo-born senior executive of Emirates, will be appointed to the position.

While Sharman wanted to talk about the 29 per cent rise in operating profits at the airline, the absence of a chief executive announcement was still a major talking point. One observer asked the reasonable question: "Why didn't they just wait until they had their man in the bag and then announce the 2004 results?"

Regardless of this, Sharman remained bullish and preferred to talk about the strong progress made in 2004.

On the surface, the results certainly have a polished look. Aer Lingus now boasts an operating margin of 11.8 per cent, the highest achieved by any flag carrier in Europe in 2004.

It flew a record 6.9 million passengers on scheduled services in 2004 and achieved a load factor of 82 per cent. Despite the high decibel campaign by Ryanair in the Republic, Aer Lingus is actually carrying more passengers in and out of Ireland annually.

However, the results were achieved by the management team led by former chief executive Willie Walsh.

The results also happen to be 3½ months old. Going forward, the airline's polished figures lose some of their shine.

While Walsh was a firm believer in the airline reaching an operating margin of 15 per cent, Sharman was a little more sanguine about this yesterday.

Asked could the airline move substantially beyond its 11.8 per cent margin, he simply replied: "It's slightly early to make a call on that one."

With operating profits of €107 million for 2004, the incoming chief executive will be expected to beat that benchmark for 2005. Against a background of rising fuel prices and declining yields, only reasonably aggressive cost cutting is likely to make that a reality.

In that regard, Sharman was far more outspoken in his comments. He admitted the pace of staff reductions was agonisingly slow and talks with unions were taking "far, far too long".

In his results statement, he spelled out future problems for the airline. "Continued failure to agree work practice changes and high fuel prices are significant threats to this year's profit performance."

The company has, of course, made a €97 million provision for voluntary severance and early retirement, but persuading staff to avail of this is another matter.

Chief operating officer Niall Walsh, who is dealing with most of the industrial relations issues at present, said he believed the changes would come in time.

But the danger of slippage in the airline's cost-cutting plan, which was meant to reduce staff numbers by 1,325, is clear. According to figures circulated yesterday, 734 employees left the airline in 2004, while 185 have departed in 2005. This still leaves the airline seeking more than 400 redundancies at the very least.

With the airline still considering various outsourcing options, Niall Walsh said it needed to make reductions "equivalent" to about 480 job cuts in the period ahead.

He made it clear that the airline had no ideological fixation on getting rid of jobs and outsourcing whatever was left. He said that, if an "in-house" solution could yield up the cost savings required, outsourcing might not be needed.

However, there is serious scepticism about this in some quarters. The problems in many ways are not about work practices but more about rates of pay. For example, the rates paid to traditional airline cleaning crews are far higher than those offered by outsourcing specialists such as British firm Fernley Aviation Services, which Aer Lingus has been dealing with.

Whatever methods are ultimately used, the market believes Aer Lingus has no option but to keep reducing costs.

Joe Gill, Goodbody Stockbrokers aviation analyst, summed it up yesterday. "It needs to continue on that road if competitive pressures are to be met," he said.

The absence of a chief executive, particularly one with a strong track record in the airline business, makes getting concessions from unions more difficult, some believe.

"If local management makes a stand on a certain issue, they need the full-time chief executive to back them up," explained one source connected with the company yesterday.

The reason staff costs are important at this point is that Aer Lingus can do very little about rising fuel costs. The airline has already hedged about 70 per cent of its 2005 fuel requirements and a small portion of its 2006 requirement.

With little chance of clawing anything back on fuel and revenue only rising by 2.1 per cent, the airline is increasingly searching for other ways to bolster its financial position, apart from cost-cutting.

The obvious way is to open new routes and the airline is finalising a review of future long-haul operations.

Sharman said destinations in South Africa, the Middle East and even Asia are being considered. However, he acknowledged that new kinds of aircraft and new air crew deals would be needed to make this a reality.

A highly restrictive bilateral agreement between the Republic and the United States confines Aer Lingus to just five US airports, so growth on the transatlantic appears to be limited, at least for now.

Interestingly, in 2004 the airline diverted capacity from Britain and into continental Europe. This move paid off - passenger numbers to continental Europe rose by 25.8 per cent. The growth on the transatlantic was more modest, with passengers numbers to the US up by 7.2 per cent.

The problem with expansion and greater long-haul activity is that new planes are needed. While the airline's seven existing long-haul aircraft are not very old, to serve destinations such as Asia would require a whole new fleet of long-haul aircraft.

Sharman was clear that, by the summer, the airline will finally know what aircraft it needs for its long-haul business. He put the bill for long-haul aircraft at between €1 billion and €1.5 billion.

This means a substantial chunk of equity must be sold to release funds for the long-haul fleet renewal programme. This puts the ball back in the Government's court.

Next Tuesday is the most likely date for a decision on the airline's future, although nobody will be surprised if the issue is long-fingered yet again.