Aer Lingus Sale

jjbrien

Taken from rte.ie

The Dáil has taken the first legal step on the road to privatising Aer Lingus.

Despite Opposition protests, TDs have backed the principles underlying the share sale that would see a majority stake going to private investors.

The Minister for Transport, Martin Cullen, said the public would be able to buy shares subject to a mimimum investment of €10,000 and told TDs he expected the process to be complete by the end of September.
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During a debate, Fine Gael's Olivia Mitchell called on Minister Cullen to withdraw the motion, because she believes it would not give the proper approval for the sale of such shares and would be found to be unlawful if challenged.

However, Mr Cullen said he had legal advice to say the motion was lawful.

Labour's Roisin Shorthall said the Government was reneging on its promise to put money into the Aer Lingus pension fund.

The State will retain at least 25.1% of the shares in the company, and new shares in the airline will be issued.

The exact number of shares to be offered will be decided by the Minister for Transport and the Minister for Finance closer to the time.

SIPTU protest disrupts flights

SIPTU workers at Aer Lingus have returned to work after this morning's protest meeting over the company's planned privatisation.

The work stoppage, which lasted just over an hour, directly hit seven flights in and out of Dublin, Cork and Shannon Airports but many more have been delayed as a result.

The action caused delays of around a hour and a quarter for many of the up to 1,500 affected passengers.

Check-in resumed at Aer Lingus desks in Dublin Airport at 11.15am.

Aer Lingus said it would be processing 26,500 passengers on 78 flights today.

At the protest meeting, SIPTU President Jack O'Connor told his members that the union remain opposed to privatisation.

However, Aer Lingus Chief Executive Dermot Mannion said on RTÉ Radio's Morning Ireland that he believed privatisation would proceed when a deal on working conditions and pensions is agreed with all four unions.

jjbrien

jjbrien wrote:

Taken from rte.ie

The Minister for Transport, Martin Cullen, said the public would be able to buy shares subject to a mimimum investment of €10,000 and told TDs he expected the process to be complete by the end of September.
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That rules alot of people out from buying shares. I would to have loved to put some of my savings into Aer Lingus but not 10k.

oscarBravo

I think that's the point of the minimum investment - to rule out risk-averse investors.

jjbrien

Yes but whay did they not set it at 5K its a significant investment.

oscarBravo

*shrug*

If you're going to pick an arbitrary threshold, one is as arbitrary as the next.

New_Departure06

The sale is necessary because:

A: If the company was in dire straits EU rules would prevent the govt bailing it out. This could be the only way to save Aer Lingus in a future downturn in the aviation sector. The govt is only allowed to invest in good times.

B: The health-service and schools shouldn't have to compete with funds with planes in respect of govt money.

C: The state is inefficient (e.g. money wasted on overspends on roads etc.) and companies are therefore run less efficiently than they could be potentially with more market freedom including more avenues of raising capital.

Aer Lingus will need to replace its fleet and needs capital of around €1 billion and the govt is hardly going to provide that.

Jackie laughlin

As a citizen I strenuously object to my airline being sold or given away. Yes, my objection extends to workers receiving shares which do not belong to them.

It's not a question of investment in schools, hospitals or aeroplanes. The problem is a childlike belief in markets and privatisation. Health is being privatised. Schools may follow. Prime Time last night covered the privatisation of local services via scams involving inefficient management companies.

Waste of public funds in recent years has happened by way of the employment of private companies who fail to deliver or fail to deliver on time. The state is eternally trying to intervene to make markets efficient.

Private enterprise and markets have a huge role in a mixed economy. However, we are relying far too much on simpletons who seem unable to get beyond, "Problem? Privatise!"

sovtek

Even if Aer Lingus is privatized it's still virtually a monopoly on flights out of Dublin...it aint gonna improve that situation one bit. It's only competition is Ryan Air (and they are the worst airline I've ever flown with) and they are trying their best to take over as well.
Private companies are efficient at making money not necessarily providing services.
Air travel is just like public transport and should be in the public hands.
Just look at the American system...it's just as inefficient and unsafe to boot.

my_house

this government really really really seems to be following Margaret Thatchers way of doing business. privatising Air Lingus isnt a good idea imo

Glenbhoy

New_Departure06 wrote:

The sale is necessary because:

A: If the company was in dire straits EU rules would prevent the govt bailing it out. This could be the only way to save Aer Lingus in a future downturn in the aviation sector. The govt is only allowed to invest in good times.

B: The health-service and schools shouldn't have to compete with funds with planes in respect of govt money.

C: The state is inefficient (e.g. money wasted on overspends on roads etc.) and companies are therefore run less efficiently than they could be potentially with more market freedom including more avenues of raising capital.

Aer Lingus will need to replace its fleet and needs capital of around €1 billion and the govt is hardly going to provide that.

A: If the company gets into dire straits it will not be saved regardless - why would it?
B: I agree completely, but why would it compete. Aer Lingus is a very profitable company, it's relatively easy for such a company to raise finance from banks etc. Indeed the national pension fund could loan money at a slightly reduced rate to the airline and we'd all be winners?
C: Why is this? Is it because non-state owned enterprises have less regulations to adhere to (see irish ferries)? Is it not true that Aer lingus is a pretty lean airline, indeed if it was'nt, why would an investor buy shares?
See point B

New Deal, I think your points are quite good (although points B and D are the same imho), my main concern about this sale is:
Aer Lingus is a profitable venture, last year it made €160m, this year €82m. In light of this, why sell - surely it's actually generating money for the state at present. They hope to realise approx. €600m from this sale, that is a pretty irrelevant sum of money in todays environment. Say the airline averages €50m profit for the next 10 years (factoring in interest on the 1bn loan expenditure, and presuming that extra profits don't arise from the investment, in which case one would question the wisdom of investing at all). Then over the next 10-12 yrs the state would bring in similar amounts of money (ignore the time value) and still have the asset. Now I know that professional consultants have worked out the numbers, but still, i don't see the point of selling.

jhegarty

Glenbhoy wrote:

A: If the company gets into dire straits it will not be saved regardless - why would it?
B: I agree completely, but why would it compete. Aer Lingus is a very profitable company, it's relatively easy for such a company to raise finance from banks etc. Indeed the national pension fund could loan money at a slightly reduced rate to the airline and we'd all be winners?
C: Why is this? Is it because non-state owned enterprises have less regulations to adhere to (see irish ferries)? Is it not true that Aer lingus is a pretty lean airline, indeed if it was'nt, why would an investor buy shares?
See point B

New Deal, I think your points are quite good (although points B and D are the same imho), my main concern about this sale is:
Aer Lingus is a profitable venture, last year it made €160m, this year €82m. In light of this, why sell - surely it's actually generating money for the state at present. They hope to realise approx. €600m from this sale, that is a pretty irrelevant sum of money in todays environment. Say the airline averages €50m profit for the next 10 years (factoring in interest on the 1bn loan expenditure, and presuming that extra profits don't arise from the investment, in which case one would question the wisdom of investing at all). Then over the next 10-12 yrs the state would bring in similar amounts of money (ignore the time value) and still have the asset. Now I know that professional consultants have worked out the numbers, but still, i don't see the point of selling.

but you don't have to fund a give away buget to try and buy an election (again).....

BuffyBot

privatising Air Lingus isnt a good idea imo

Why not? Just because?

Akrasia

BuffyBot wrote:

Why not? Just because?

Because the government is hoping to raise about 1.1 billion from the sale of the company, but that company has cost the irish tax payer significantly more than that to build up into what it has become today. Selling at anything less than 15 billion is a massive loss for the tax payer.
Here are some basic facts.
1. A long haul aircraft costs around €220 million to buy from new. Aer Lingus has 7 long haul aircraft (to replace that fleet would cost about 1.5 billion)
2. A short haul aircraft costs around 50-80 million to buy new. Aer lingus has 27 of these aircraft. To replace that fleet would cost at least 17.55 billion euros
3. Aer lingus has slots in major airports around the world that are extremely valuable to asset strippers and competing airliners
The Aer lingus Brand, their staff and company profile are all significant assets, not to mention the significant reserves built up in the staff pension fund.

How, in anyone's planet, could anyone recommend selling 34 fully functioning and fully utilised aircraft, all the service infrastructure and their airport slots to finance the purchase of 5 or 6 new aircraft?


It's absolutely insane

A Dub in Glasgo

oscarBravo wrote:

I think that's the point of the minimum investment - to rule out risk-averse investors.

Does that mean that people who can afford to put €10k in are not risk averse?

If I have €100m, putting €10k into a business might mean I am risk averse
If I have €20k, putting €10k into a business might mean I am not risk averse

The simple point of setting the minimum at €10k is that the government want big business and wealthy individuals to buy rather than 'small' investers.

oscarBravo

A Dub in Glasgo wrote:

Does that mean that people who can afford to put €10k in are not risk averse?

Fair point. Let me rephrase - to rule out risk-averse small investors.

Glenbhoy

Akrasia wrote:

Because the government is hoping to raise about 1.1 billion

Airline valued at 1.1 (maximum value, realistically, 900m), they retain 25.1%, the employees retain approx 15%, therefore only 60% is for sale, hence they'll raise 600m after costs if lucky.

soiaf

Akrasia wrote:

2. A short haul aircraft costs around 50-80 million to buy new. Aer lingus has 27 of these aircraft. To replace that fleet would cost at least 17.55 billion euros

Where are you getting 17.5 billion from? 27 planes would be around 2 billion with the costs you've quoted.

darkman2

It needs to be privitised. Anyone who dosent see that must be living on the moon. Remember the government will still hold a 25% stake to protect strategic interests in the company but Aer Lingus wont exist in 3 years time if it isnt privitised.

Raskolnikov

Akrasia wrote:

3. Aer lingus has slots in major airports around the world that are extremely valuable to asset strippers and competing airliners[/SIZE]

The government are holding on to 25% of Aer Lingus to ensure that our favourable landing slots will not be sold.

Bill McH

darkman2 wrote:

It needs to be privitised. Anyone who dosent see that must be living on the moon. Remember the government will still hold a 25% stake to protect strategic interests in the company but Aer Lingus wont exist in 3 years time if it isnt privitised.

The company is turning a profit and has been for a couple of years. There is no reason that the Government or the National Treasury Management Agency could not invest in the company, to enable them to buy new planes. Given that it is now a fairly healthy company, the airline would also be in a reasonable position to borrow cash in order to buy new planes. There is no reason at all why it will not exist in 3 years if it isn't privatised.

Perhaps you would move yourself forward a few years, darkman2, and tell us what your future plans for the airline would be.

What, for example, will happen in 10-20 years time when the company again needs to replace its fleet? How will that be funded? By bank borrowings? Or by the government selling off the remaining 25%? And how do we protect the vital slots at Heathrow, etc., at that stage?

Cork

will happen in 10-20 years time when the company again needs to replace its fleet?

Aer Lingus may not even be around then.

Airlines come and go. They don't consistantly make money.

As a company - Aer Lingus has already been bailed out by the state.

Aer Lingus's prices in the pre Ryanair era were a rip off.

Let Aer Lingus sink or swim. It is now up to their workers and managemant.

Nuttzz

A Dub in Glasgo wrote:

The simple point of setting the minimum at €10k is that the government want big business and wealthy individuals to buy rather than 'small' investers.

Or they dont want a repeat of the eircom float....

Lots of floats have a minimum investment level, buying €10k worth of shares has the same administration costs as buying €100 worth of shares, not a lot to do with big business tbh just common sense when you are managing a floatation

therecklessone

Bill McH wrote:

And how do we protect the vital slots at Heathrow, etc., at that stage?

I keep hearing about these "vital" slots @ LHR, you're the unlucky one I guess. Why are they vital?

therecklessone

Cork wrote:

Aer Lingus's prices in the pre Ryanair era were a rip off.

And this is relevant because?

Bill McH

therecklessone wrote:

I keep hearing about these "vital" slots @ LHR, you're the unlucky one I guess. Why are they vital?

Somebody else will probably explain it better, but as far as I know the reasoning is something like this.

LHR is the busiest airport in Europe, maybe even the world. There are flights between LHR and all corners of the globe. Dublin is an hour's flight away and there are between 12 and 14 Aer Lingus flights a day between Dublin and LHR. Anybody wishing to travel from any corner of the globe to Dublin can then do so by travelling to LHR and getting on a flight to Dublin. There is very likely to be a connecting flight at a suitable time and it only adds, say, two hours (all in all) to their journey. The same would apply in the opposite direction, Dublin to any corner of the globe.

It would also be possible to get from any corner of the globe to Dublin by going via other major European airports such as Frankfurt, Amsterdam or Paris. These airports may have direct flights to in or around the same number of worldwide destinations as LHR, I don't know. I don't think that Frankfurt, for example, would be too far off. But all three of them are around a two hour flight from Dublin and there wouldn't be as many flights to/from Dublin per day. Aer Lingus runs 5 per day to/from Amsterdam, 3 per day to/from Paris and just 2 per day to/from Frankfurt.

There's also 4 LHR-Cork flights a day and 4 LHR-Shannon flights a day run by Aer Lingus. Apart from 1 Paris-Cork flight per day, connections between Frankfurt, Amsterdam and Paris and Cork/Shannon are non-existent.

So LHR is a pretty attractive option for travel between Ireland and the rest of the World.

Quite apart from all of that, the UK is our largest trading partner and obviously we have a fairly close connection. LHR is only 15 or so minutes by train from London and so is a fairly handy airport to go to. Gatwick wouldn't be too bad, I suppose, though the last time I looked that airport was pretty chocca. There was talk of building a second runway but I don't know if they ever got around to it. But if you were relying on Luton or Stansted for rapid travel between London and Dublin/Cork/Shannon, well they're not really very attractive options.

therecklessone

Bill McH wrote:

So LHR is a pretty attractive option for travel between Ireland and the rest of the World.

Yet will become increasingly irrelevant when (if?) Aer Lingus get the opportunity to serve more transatlantic routes, or if they expand into SE Asia as has been predicted (Bangkok, Singapore, Hong Kong)

There are apparenty 22 cities in the US that wish to see direct flights from Ireland when the EU-US bilateral is concluded, why should Aer Lingus stick to delivering transatlantic passenengers to their competitors in London? Why not target that business themselves? Ditto with SE Asia/Australia/NZ busniness. Let the airline aggressively target those passengers, and indeed, let them target UK/European passengers wishing to travel to those destinations with Dublin as their transit point, lets take some of LHR's business from them!

Bill McH wrote:

Quite apart from all of that, the UK is our largest trading partner and obviously we have a fairly close connection. LHR is only 15 or so minutes by train from London and so is a fairly handy airport to go to.

Personally,if I was doing business in London, I'd fly to London City with Cityjet(Air France).

People seem to think that because the LHR slots are in demand, that they must be vital for the future of Aer Lingus and the furure of Irish aviation. IMO, nothing could be further from the truth.

Jackie laughlin

There is no plausible economic, business, political or practical reason for this sale. The motivation is so deeply ideological as to make it religious. The instigators are neo-liberal zealots immune to debate and reason.


By the way, prices in pre-Ryanair days were outrageous but no minister, convinced that lower prices would increase revenue and profits, did anything about it. Aer Lingus - if their management and board could not see the equation - could have been instructed to reduce prices. Instead the state supported Ryanair, ordering in the early days that Aer Lingus not compete; Aer Lingus was removed from Stansteadt by ministerial order.

Cork

Jackie laughlin wrote:

Aer Lingus was removed from Stansteadt by ministerial order.

Their ineffiecys and crazy prices did nothing for this country. Competition has forced Aer Lingus to reform. They will now sink or swim.

It is up to Aer Lingus staff and management to make a success of the airline. Government will no longer be a safety net.

If they succeed great - If they fail - they'll be taken over.

Jackie laughlin

Cork,
I already said that the prices were crazy. Everyone said so at the time. However, the state did not have to create competition as it did. A minister could have ordered a price reduction.

The virtues of markets and competition are greatly exaggerrated. Markets then have to be regulated by the state to prevent monopoly and other abuses. Without controls markets would collapse. However, ordinary people are duped into agreeing to the transfer of wealth to people already wealthy.

New_Departure06

Jackie laughlin wrote:

As a citizen I strenuously object to my airline being sold or given away. Yes, my objection extends to workers receiving shares which do not belong to them.

It's not a question of investment in schools, hospitals or aeroplanes. The problem is a childlike belief in markets and privatisation. Health is being privatised. Schools may follow. Prime Time last night covered the privatisation of local services via scams involving inefficient management companies.

Waste of public funds in recent years has happened by way of the employment of private companies who fail to deliver or fail to deliver on time. The state is eternally trying to intervene to make markets efficient.

Private enterprise and markets have a huge role in a mixed economy. However, we are relying far too much on simpletons who seem unable to get beyond, "Problem? Privatise!"

What is the problem with privatisation in principle? Irish Life is doing fine in the private-sector. Private-hospitals are needed to take pressure off a public-healthcare system which has manifestly failed. The profit-motive means that the private-sector builds hospitals far quicker. Ditching private-hospitals is the triumph of ideology over pragmatism and is nonsensical.

Waste of public-money is something the health-service would know all about. Their capital was tripled but has the service? Maybe the absence of a profit-motive is part of the problem rather than a desired state of affairs? The private-sector is less wasteful of cash than the public-sector precisely because they want to make a profit.

Jackie laughlin

There is nothing wrong with privatisation in principle. However, it is not a panacea. On the contrary, waste and failure often follow. Wasting public money has become very profitable. If you believe that the profit motive is always producitive, I suggest you try getting clean floors out of a contract cleaning company.