With the disposal of an unprofitable non-core subsidiary finally on the horizon, Aer Lingus now has to confront the bigger questions of ownership and alliances.
At presstime the management of the Irish flag carrier had still not convinced the 1,550 strong workforce of its unprofitable aircraft maintenance arm, Team, to approve the sale to FLS Aerospace.
However, the staff who last month vetoed the sale have been told that if they don't reverse their decision by July, Aer Lingus will start an 'orderly winding down' of Team, says a spokesman for the carrier.
With Aer Lingus dedicating its management resources to the disposal of Team, bigger and potentially urgent strategic questions are being put on the back burner.
The Irish government, sole owner of the flag carrier, is still waiting for Aer Lingus to deliver a report it requested on the carrier's strategic alliance strategy. The report was due to have been completed at the end of 1997.
According to a spokesman from pilots union Ialpa, 'Aer Lingus missed the boat [on alliances] a number of years ago' and 'it is very important it doesn't miss it again'.
'We don't want to end up going round on our hands and knees begging,' he says.
Michael O'Leary, chief executive officer of low-cost rival Ryanair, predicts that Aer Lingus 'will come to a deal with British Airways that will be a copper fastening of what already happens - they feed BA out of Heathrow'.
Aer Lingus has codeshares with Delta, Finnair and KLM but potential alliance partners and questions of equity participation are 'absolutely premature to think about', says an Aer Lingus spokesman.
He emphasises that the airline's focus on business and premium leisure traffic, coupled with its five new Airbus A330s, have contributed to a 'vastly improved performance'.
Aer Lingus claims to have achieved higher load factors and to have 'clawed back' market share on the UK-Ireland routes. It has also achieved strong growth on the transatlantic market.
In a bid to improve Aer Lingus' performance further, a IR£50 million (US$70 million) five-year cost-cutting programme is underway. The company aims to raise the return on sales significantly, from the 5 per cent it achieved in 1996 to 7 per cent.
Cost savings may be even more necessary in the light of Ryanair's European Court action against the European Commission. This could force Aer Lingus to pay back the second, IR£50 million tranche of state aid authorised in 1995.
At an oral hearing held at the end of May Ryanair, represented by law firm Norton Rose, accused the Commission of 'failing in its duty' to make Aer Lingus comply with its own original conditions on restructuring and capacity. Ryanair's O'Leary hopes for a decision 'before the end of the year'.
Source: Airline Business
