The Government's decision to allow Aer Lingus to prepare for flotation is a welcome, if not unexpected, development. It represents the latest phase in the remarkable transformation shown by the national airline. Less than a decade ago Aer Lingus, burdened by huge debts and an unsustainable cost-base, appeared to be on the brink of insolvency. Today, after much internal angst, Aer Lingus is a leaner, fitter organisation generating steady profits - over £50 million last year.
If Aer Lingus has moved on, so also has the debate about privatisation. Whereas some years ago, the potential sale of the State airline would have provoked ideological battles, there is now a broad political consensus that it represents the best option for the company. It may have made substantial progress in recent years but it still needs major capital investment - around £500 million for fleet replacement over the next five years and perhaps substantially more if the projected increase in revenues, expected to flow from its recently completed strategic alliance with the Oneworld international airline grouping, actually materialise. Against this background, flotation makes good sense.
At this juncture, the airline appears well placed for flotation; the alliance with the Oneworld grouping - which includes American Airlines and British Airways - should provide it with the potential to generate bigger profits. Aer Lingus has other advantages; despite the turmoil of recent years, it remains synonymous with high standards of safety and service.
By most estimates, Aer Lingus should have a market valuation of around £500 million although the notoriously volatile nature of the airline sector makes such predictions difficult. Much will depend on the state of the market when Aer Lingus is floated and, more generally, the state of the airline sector. This has been unusually stable for some time but the industry, more than most, is susceptible to cyclical downturns. For all that, Aer Lingus - buoyed by the boom in the Irish economy - has managed to buck the international trend by registering impressive growth levels in recent years. It can look forward to flotation with a fair degree of confidence.
Evaluating how the public might respond to the flotation is difficult. The relatively small scale of the company and its obvious need for huge capital investment means that there will be nothing like the same scramble for shares evident during the flotation of Telecom Eireann (now Eircom) last year. The disappointing performance of Eircom shares in recent months may have lessened the public's appetite for share-owning. Despite this, it is to be hoped that the flotation will be a success for a company that has, by and large, served the people of this State well. A successful flotation would also give a boost to the Government's privatisation programmes; there are others in the commercial semi-State sector which are also ripe for privatisation and where, as at Aer Lingus, there is no longer any meaningful role for the State.
