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Aer Lingus stake continues to haunt government
Sunday, October 12, 2008 By Niamh Connolly, Political Correspondent
As Aer Lingus and the unions do battle over the company’s cost-cutting plans, which include laying off 1,500 staff, the government could find itself in the firing line.

The perennial problem of cost-cutting at Aer Lingus has returned to haunt the government, even though it only owns only 25 per cent of the airline Last Monday, Aer Lingus told unions it would be embarking on a €74million cost-cutting plan, which would include shedding 1,500 jobs, with a deadline of December 1.

Dermot Mannion, the airline’s chief executive, said the cuts were needed to ensure the viability of its operations and that the company had lost €22 million in the first six months of the year.

The government now faces the worst of two worlds. Its decision to retain a 25 per cent stake in the airline raises the expectations of trade unions, staff and the general public that a ‘white knight’ will block the plan.

The government’s reduced clout since privatisation allows its board appointees to intervene only to protect the country’s overall strategic aviation and regional interests.

But its continued minority stake makes every twist and turn at Aer Lingus a pressing constituency issue for politicians, particularly when sweeping redundancies promise further hardship for families in a time of recession.

This is acknowledged by a number of TDs in constituencies closely associated with the former state carrier’s financial fortunes.

The ideal scenario for politicians in these constituencies is a negotiated deal between management and the unions that could reduce inefficiencies, while also meeting the unions’ concerns about large-scale outsourcing.

Nonetheless, there is general acknowledgment that the days are long gone when unpalatable but necessary commercial decisions were postponed indefinitely to avoid upsetting the electorate, trade unions or employees.

That was the underlying message in Taoiseach Brian Cowen’s statement last week when he stressed Aer Lingus’s status as a private company.

But as long as the government holds a stake in Aer Lingus, the public will question why it says it can’t intervene in the case of jobs being outsourced or ‘‘exported’’ to Aer Lingus bases abroad as part of the airline’s cost-cutting measures.

The board’s powers were beefed up by Noel Dempsey, the Minister for Transport, in the wake of Aer Lingus management’s decision to transfer its Heathrow slots from Shannon to Belfast. Its government appointees can now compel management to bring all matters of strategic or regional interest to the board for approval before any decision is taken.

But the bottom line is that all board members must act in the commercial interests of the company - and a major cost-cutting plan is accepted as crucial to positioning the airline for survival.

The government will still take the flak for unpopular commercial decisions, particularly those involving large-scale redundancies.

Fianna Fáil deputies such as North Dublin TD Michael Kennedy and Clare TD Timmy Dooley are vulnerable to a backlash in their own constituencies, which are closely bound up with the airline’s future in Dublin and Shannon.

‘‘This commercial decision is a big challenge, but I would be asking the unions and management to sit down and work out a proposal to bring efficiencies to Aer Lingus to allow it to trade profitably,” said Kennedy.

‘‘The era of low-cost carriers is the order of the day. We would hate to see an Alitalia situation with Aer Lingus. But I don’t believe management can be dogmatic in saying we’ve got to outsource if the unions can bring about new structures and efficiencies to allow it to trade profitably.”

Dooley, who is in the firing line for cutbacks at Shannon Airport, is equally clear about the need for commercial decisions to prevail in a new era of cut-throat airline competition. But he makes a distinction between operational decisions to secure the long-term survival of the company in the west and strategic decisions taken by the airline that affect regional interests, such as Aer Lingus’s withdrawal of its Heathrow slots to Shannon, a decision he opposed last year.

‘‘The loss of Aer Lingus staff jobs has an impact on their own lives and those of their families, particularly when they signed up in the belief, rightly or wrongly, that they had a job for life,’’ Dooley said.

‘‘But I would hope that unions and management would identify areas that can be saved. If there are cost cuts and changes in work practices needed at this stage, then workers and unions have to come to the table in a very realistic manner. I would encourage management to be prepared to listen to proposals that seek to achieve bottom line savings.”

In the past, political sensitivities meant the state carrier was often teetering on the brink of bankruptcy, by which time an exchequer bail-out was the only solution.

The airline’s privatisation has effectively removed the ‘‘dead hand of the state’’ from its operations. This means that the company can take steps at a earlier stage to position the airline for the financially perilous months ahead.

Chief executive Dermot Mannion, in a letter to Jack O’Connor, general president of Siptu, warned that the company was facing losses in excess of €100 million for 2009 threatening ‘‘the viability and the independence’’ of the company unless urgent steps were taken. The company sustained losses of €22 million in the first six months of the year.

The airline industry is in a whole new phase of cut-throat competition amid the global credit crunch, peak oil production and worldwide recession leading to a rapid slump in consumer confidence.

Already, budget airlines like Zoom and Excel Airways have collapsed. Greece’s national carrier, Olympic, is on the edge, while the sick state airline of Europe, Alitalia, is once again on the brink of bankruptcy.

Against this backdrop, the Aer Lingus plan to cut 1,500 jobs - mainly by outsourcing most of its ground handling operations - is seen as crucial in protecting its future.

Aer Lingus unions question the need for large-scale outsourcing, and Siptu aims to use legislation introduced after the Irish Ferries dispute to try to block moves to outsource ‘quality’ posts. Siptu wants an independent panel to consider whether the redundancies are genuinely required or are purely aimed at replacing existing workers with lower-paid outsourced jobs.

‘‘If anyone needed proof of the extent of the problems facing the airline sector, they need only look to Ryanair’s decision to ground aircraft. That’s some indication of what lies ahead and it’s clear that there are real problems at the higher end of the airline sector,” said one deputy this weekend.

Cowen last week urged that the industrial relations machinery of the state be used to work through a deal, but his message was loud and clear: the government would be taking a hands-off approach. The cabinet last week also noted that the airline’s decision was a commercial one.

The controversy is now being redirected to the Labour Relations Commission, where there may be some hope of agreeing a deal by December 1 that is sufficiently strong to slash inefficiencies and meet the unions’ concerns about outsourcing.

In the meantime, the trade unions at Aer Lingus adopted the precautionary principle of balloting for industrial action that would extend to the grounding of flights if no deal emerged.

Some insiders will accept that Aer Lingus is still burdened with many of the unsustainable work practices of a public sector company, noting that cabin crew ‘overnight’ in five-star hotels such as The Drake in Chicago.

‘‘The problem is that there are still raised expectations, but it’s difficult for Aer Lingus to survive with a public sector mentality in a world governed by private sector rules,” said Alan McQuaid, an analyst at Bloxham.

Even with radical cutbacks, a wider consolidation of the industry is on the way, with smaller airlines like Aer Lingus being either gobbled up or merged with a larger carrier if they’re to survive in the long term.

Key economists believe the government should have disposed of its entire stake in Aer Lingus at the flotation a couple of years ago, but the government believes the state needed to retain some influence in the interest of Ireland Inc.

Former taoiseach Bertie Ahern, whose Dublin Central constituency is closely tied to the fortunes of Aer Lingus, supported state involvement, not just for electoral reasons.

Despite the political headache presented to many Fianna Fáil deputies when cost-cutting decisions are taken, the predominant view is that continued government involvement was right at the time.

The state’s minority stake when combined with the employee share ownership trust (Esot) served a strategic purpose in blocking Ryanair boss Michael O’Leary’s bid to take over the airline.

Government sources outlined the three key reasons why it continued to hold onto its minority stake: to prevent any future moves to sell off the airline’s valuable Heathrow slots, which are considered vital to the country’s interest; to promote competition; and to block a hostile takeover.

Meanwhile, the redrawing of the electoral boundaries before the next general election will transfer much of Dublin North – including Dublin Airport and half of Swords, where thousands of airport staff live - to Dublin West, the constituency of Brian Lenihan, the Minister for Finance.

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