Aer Lingus is back in the spotlight since the British Airways parent IAG formally announced the terms of its offer for the airline last week, valuing it at €1.4 billion and stating the offer would remain on the table for acceptance until 5pm on July 16th.
Aer Lingus is one of the best performing legacy airlines in the world and has a special place in the hearts of Irish people and the diaspora. So how did it come to this, and how did governments make such a mess of the company? The sell-off has been promoted as inevitable; the best outcome; that only a big multinational can invest in Aer Lingus.
In another decade will the same excuse be used when Irish Water is privatised – that the State cannot afford to invest in Irish Water? But the €64 billion question is how come the Government could “invest” in the failed private banks during an economic meltdown?
How did governments screw up so badly? In 1936, far more visionary politicians set up Aer Lingus, when aviation was in its infancy. Then after 70 years of State ownership, the Fianna Fáil/PD government decided to privatise 75 per cent of the company for ideological reasons.
Some Fianna Fáil TDs recently claimed it was privatised because it had to be subsidised. Untrue – it received no subsidies and made profits of about €90 million in 2005. It had rapidly recovered from 9/11 by cutting costs and fares dramatically and was profitable. This Government's programme, then troika-dominated, agreed to sell-off "up to €2 billion" in State assets. With the Aer Lingus money, it will have sold-off public assets worth almost €4 billion, or twice that sum. Why this drive for privatisation?
Ultra-free markets
For 30 years many governments uncritically followed the international economic fashion of ultra-free markets, deregulation, tax-cutting and privatisation. It worked for some decades and then spectacularly collapsed.
The Fianna Fáil/PD government was especially enthusiastic. Hence our collapse was the biggest. Many of the elite at the banking inquiry admitted to being slaves to groupthink or more precisely to “ultra free-market liberalism”. Privatisation is part of this ideology.
Governments enthusiastically privatised, urged on by the media, by the many professionals who stood to make fortunes and by the potential new owners who saw opportunity for personal gain from the switch in ownership. Privatisation rarely adds value but generates money for the elite for little effort.
The consolidation of airlines is probably the strongest argument for the sell-off of the State's stake in Aer Lingus. Yet airline mergers have yet to prove a financial success. Iberia and the largest airline group in Europe, Lufthansa, are struggling.
There is consolidation but simultaneously there is growth in the number of airlines. There are now more than 5,000 airlines in the world and there are about 80 airlines in Europe. The key argument for consolidation is that large airlines can buy aircraft cheaper by getting bigger discounts. Yet timing on aircraft purchase and their efficient use are more important than scale. Leasing is another option.
National role
Aer Lingus has performed well. It has already proven that there is room for a well-run regional airline. With a supportive shareholder in NewEra, its future and its national role would be more secure than within IAG/BA.
Thus it is not size but adaptability which is important to survival. As a small part of IAG, Aer Lingus, even as a separate unit, will be far less flexible and will be less able to innovate. Finally, some airlines are now so big that the next phase is likely to be the break-up of these oligopolies because they stifle competition.
The only reason that there is any debate over Aer Lingus's role in Ireland, jobs, regional development, connectivity, workers' rights and its future is because it is a "stakeholder"-controlled company.
Full privatisation will turn it into a “shareholder value” company. IAG’s shareholders will dominate. The interests of all other stakeholders will matter little. As soon as the agreements run out, such obstacles will be terminated if they don’t add to the bottom line.
Ireland needs a good pool of strong indigenous firms. A small globalised state needs governments to manage its economic role in the world. A State-controlled Irish airline is one such strategic company. It is not too late to change, especially when wrong.
The same excuses will be wheeled out in a decade when the government says it “has to” privatise Irish Water because it can’t (won’t) invest in a public utility.
Paul Sweeney advised Aer Lingus trade unions on financial and aviation matters from 1990 to 2005