What is the problem that selling Aer Lingus is supposed to solve?

I am writing this in the Aer Lingus lounge in Heathrow’s new Terminal 2, somewhere I spend a lot of time. Like a lot of other Irish people, I am a loyal customer of the national carrier, for a very simple reason: it’s a fantastic airline. It serves lots and lots of destinations direct from Dublin — no more going through London to get anywhere, which was once very often the case. It’s cheap — thanks to competition with Ryanair, British Airways and others. It offers the things that frequent fliers want — lounge access and terrific service. It pays decent wages. It’s Irish.

What’s not to like?

When deciding whether or not to sell the State’s remaining stake in Aer Lingus, you have to make value judgements, whether you admit to doing so or not: there are no “scientific” grounds to prefer one outcome to another. It’s the customer experience that matters to me, and I don’t see why you would think that selling the State’s stake would improve that in the long run.

So, what’s in it for me consumers?

Here’s a radical thought: ballot Aer Lingus customers, and see what they think. Isn’t the customer supposed to be king?

76 replies on “What is the problem that selling Aer Lingus is supposed to solve?”

Unions are opposed to this which means they must think customers could get a better deal via full privatisation.

It’s cheap?
I have never found an EI flight as cheap as a Ryanair (FR) flight on a similar route.
For the plebs who fly Ryanair to Stansted, as distinct from those whose fares are paid for directly or indirectly from the public purse and can lounge in LHR Terminal 2, the FR DUB STD fare is usually about half the price of the EI DUB LHR flight. The differential on other routes (to continental Europe) is normally larger.
Indeed, what’s not to like? The fare.
I am glad it’s the customer experience that matters to you, but as an investor and taxpayer I look to the bottom line.

If a customer thinks governments will somehow find a way to subsidise their favourite industry (for example, by not imposing appropriate carbon taxes) then a ballot of consumers is not a very good idea.

Re: Comparison with automobiles

It is not only, the customer is supposed to be king.

It is much more subtle than that, as any scholars of modern companies, and techniques such as management accountancy, target costing and value management will understand.

You see, much of the real problem is, is that the science of economics, is really divided into FOUR major branches:

The value management, which I talked about, is from management school, or ‘business’ school, or business management school.

Then, there is financial management.

Then there is accountancy.

Then there is economics too.

These different fields, or sciences have diverged, in modern learning institutions.

The important analogy here really, is that with the automobile industry. Because the automobile industry, walked into just the kind of thing, which is described in professor O’Rourke’s comment above.

It is not only that the customer is king, as I said, because business school, and management school researchers and teachers, will know this. Value for the customer, is the only real and useful guide, which exists in the modern economy, for organisations, to use, by which to define their goals, their target costs, and work out from there, . . . what something like a strategy, long or short-term, may need to be.

Otherwise, modern organisations are essentially rudderless.

The are just floating out their with no navigation.

This is why I specifically draw analogy to the automobile industry. Unfortunately, because economists are usually so neck-deep in what is called policy literature, and policy type debates, . . . they don’t read or pay attention, to nearly enough case studies.

I don’t mean financial case studies so much either, but management literature case studies. One of the largest Japanese automobile manufacturers went into a huge expansionary mode in the 2000’s. Economists won’t even have registered, that this happened, because for the last half a decade, economists have been so focused on economic fragility and so forth.

But the brick wall which the automobile manufacturer ran into, was it’s inability to train its own engineers and managers at a rate, sufficient to keep pace with the expansion and its acquisitions of competitors, and building of new plants around the globe in general, . . . which it did to increase market share.

The strategy had been, to get bigger.

Having experience, a whole series of new problems which it never had, with reliability, . . . it began asking that question, which professor O’Rourke put distinctly, overhead.

It asked the question, if it’s recent expansion strategy, had actually added value, to it’s consumers, . . . and if the organisation, had lost it’s way, because of the fact, that creating value for the customer, was no longer the driving force.

This is why I get back to my statement, that large organisations, can become rudderless, . . . and they don’t have to be un-sophisticated ones either, . . it can happen, and does happen to the very largest, and the very best also. The very best.

But this is really where it would help economists, if they could diversify in some areas, away from economics, and integrate back more towards the business school curriculum and literature, as I suggested above. Especially, after five years or so, where many economists may not have read that many management or financial case studies in a while, owing to the distraction of the broad financial crisis. BOH.

“there are no “scientific” grounds to prefer one outcome to another”

Really? Economists do sometimes pretend that there is a vaguely scientific method called cost-effectiveness analysis. The State is supposed to spend it’s money on the things that are most likely to benefit the citizenry. The cost per QALY of hip replacement (for which there are currently substantial waiting lists causing pain and suffering to many Irish citizens) is less than €10,000 per QALY. There are many other cost-effective treatments with similar profiles.

I gently suggest that expanding our capacity to provide such treatments in a timely fashion might be a better use of State resources than providing Gold Circle members with free booze in a Heathrow lounge.

@Peter: yes, it’s cheap if you know what you are doing. I fly a lot — an awful lot, unfortunately — and it’s as often as not the cheapest option for where I want to go. Heathrow is a very expensive airport, but that’s another matter — if Ryanair flew out of there they would also have to pay those charges. (I do agree that Ryanair is another very good airline albeit good in a very different way; the combination of these two competing in and out of Ireland on both price and quality makes for a pretty good consumer experience.)

But I am curious: you seem to suggest that private investors’ profits are what we should worry about. Why profits rather than wages? Why is one sort of income better than another? And as a taxpayer, why would you care about Aer Lingus profits (which you won’t receive if it is sold) rather than about the ease and cost of travel in and out of Ireland, which has implications for tourism, FDI, and the quality of peoples’ lives? (I’m not saying you’re wrong, these are all value judgements, I’m just curious as to why these are your priorities.)

@Enda: carbon taxes are a good thing in my view (another value judgement) but I’m not sure why that’s relevant to the debate about selling the State’s stake in Aer Lingus. But I agree, let’s not ballot the passangers about carbon taxes!

@JF: never heard of cost effectiveness analysis. Perhaps you mean cost benefit analysis? And no, by the way, cost-benefit doesn’t dispense with the need for value judgements. Aer Lingus made a profit in 2014 so I don’t see where the trade-off with hip replacements comes in. Would you prefer it to provide bad service to customers? But for sure, if you are arguing that it would make sense to spend more taxpayer money on things like hip replacements, then I agree. But that is a different issue.

I would say British Rail – service on trains in tge UK has got immeasurably worse in the last 20 years. Except Aer Lingus is already a private airline. The Irish government is just a stakeholder. Still there is such a thing as national interest and you woukd think someone in the government is capable of joined up thinking.


Fixed that for you.

The causal pathway in your thinking is interesting. Why do you think that selling some shares = bad service. And why do you think that owning shares in a company that made a profit last year means you don’t sell those shares?

My argument is simple enough – our stake in Aer Lingus is the same as any other State asset – if there is something better to spend it on then let’s do it.

There are many other suggestions I could come up with from the health budget alone, but perhaps the best one would be to complete the Primary Care Team Centre programme. A cost-benefit analysis (which was based mostly on a cost-effectiveness analysis) has been done and these deliver substantial value for money. The capital budget to finish this work is still piece meal. We’ve been trying to do this for decades – why not just take the Aer Lingus money and finally sort it out?

@JF: I didn’t say that selling AL would necessarily worsen service, although I can’t for the life of me see why reducing competition would benefit consumers. I said what the title of the post says. And, to repeat, AL is making a profit so the healthcare arguments are a red herring. I am in favour of more health spending, so long as it is properly spent. Not sure why you’d want to finance health spending (an ongoing flow) via selling off an asset.

I haven’t said the money should be used to finance current spending. I said it should be used to expand capacity – either our capacity to do things like joint surgey, or to complete the capital programme for primary care centres. Those things have implications for current spending but there is some evidence for the primary care centres at least that the benefits outweigh the initial investment. AL made a profit last year. It often doesn’t. Maybe it will make a profit this year, maybe it won’t. And if the decisions are based on profitability – why don’t we invest in companies that made bigger profits last year?

The UK train network is the most improved in Europe. Satisfaction has improved a lot and it has the best safety record in Europe. If you don’t believe me the facts are all at the link below – the study was carried out by the EU. All of this was achieved because of the investment that happened after privatisation.


Re: Devious Lateral Thinking Brains

It’s actually a number of years now, since I used to have the time and interest generally, to pace along the trails to different seminars, conferences, gatherings etc, about enterprise policy making, in Ireland (including that of the health care industry too).

This is not really so long ago, being knee-deep at the time, in the middle of a real estate management and development company, I had to keep one eye on the future planning objectives and mission statement, for a central-ish, north city suburb of Dublin.

At the time, the Irish government under the three-time FF prime minister, had some money to modernize and re-vamp the justice system, and its associated facilities that exist in Ireland. A lot of new plans, related to such were on the drawing board. We actually leased some space, to new justice department branches, and new services created within it.

What is important to remember, is that when things begin to happen in Ireland, a lot of things move, and shift position and direction, at the same time. It is actually quite an ordeal, just looking at it from a real estate development industry point of view, and trying to gain a ‘picture’ of some of it.

But I knew back then, that the justice department investment (because during the boom, the Irish state was investing in new projects), was making available some land for re-development opportunities in the city. I knew also, that this land carried with it, a lot of master plan objectives, and urban development objectives, . . . that were actually linked back, to major, major plans that were underway at the time, around a certain medical care campus not so far away in north Dublin city.

In other words, there were so many moving parts to all of this, involving industries, which I scarcely knew that much about, that I felt obliged to put myself on the trail going to various conferences, and presentations about enterprise development in Ireland.

When I listened to what the health care policy makers in Ireland, were aiming for, at that time, . . . one thing did strike me, a lot.

I emphasized the point overhead, that economists may benefit the odd time, from reading around their subject, and taking an odd glance or two, at what is going on in related fields – say corporate finance, accountancy or organisational scale management.

I’d say the same about real estate financial and business, to be quite honest. Because there were things, which I learned about healthcare policy in Ireland, which I could not have even ‘made up’, in my wildest imagination.

What the people, that I listened to at the time argued, and it is only quite recently, in relation to this said project, to expand and develop this one healthcare campus on the north side of Dublin city is as follows (I’m familiar with this area, and doing projects there for two decades now, . . so this ‘out of left field’ idea, was interesting to me).

They argued that the domestic market for these kinds of services, was only a portion of the whole opportunity, there is, for providing healthcare in Ireland. The model, which is currently being developed in other locations in Europe, as we speak, is a model where domestic healthcare service consumers are facilitated, as well as one’s from overseas and abroad.

The policy experts, whom I listened to, explain how this particular location in Dublin city, was suitable to develop as a campus, whereby many customers for these services from as far away as Africa, the middle east and eastern Europe might even come. That was the way, in which they were looking at the market.

Related to this of course, are not just airlines, but other key infrastructural projects, which the Irish state has committed to investing in, at some stage to improve the ‘connectivity’, to this particular healthcare campus in north Dublin city. Things, such as undergrounds and light rail links and so forth, to the airport on the northern edge of Dublin city.

I think, what I have managed to explain, in some roundabout fashion above, looking at it from a point of view, which is relevant to my own industry (perhaps one of the most capital investment ones), is how the twenty five percent ownership stake in the former national airline, is important from a whole lot of other points of view, . . . and indeed, future development of the healthcare industry itself in Ireland (which if it’s potential market, were increased, it might lead to much better services and availability to citizens, here on the island).

The argument, which the healthcare policy makers, that I listened to made, was that via airline connectivity, Ireland although it works with this small domestic population, which it tries provides healthcare services to, via the Irish state, . . . that it might not be as limited to this small domestic population of consumers, as one may imagine.

I mean, for me, from a point of view of a simple-minded, and innocent sort of building contractor, . . . that did sort of blow my mind. Furthermore, it convinced me how inter-connected many of these ‘critical infrastructure’ projects really are. If we’re only to look at it, from the narrow metrics, which low-fare, airlines have imposed on the conversation, then we’re probably missing the whole point. The potential customer for treatment from some wealthy European or Middle eastern country, probably isn’t going to be attracted, one way or another, by a half price fare. To be honest.

In fact, I’d be willing to trade away some absolute airline price competitiveness, for the worthwhile opportunity of increasing the potential customer base, of the Irish healthcare industry. How does that sound? How about bringing patients for example, even from parts of the United Kingdom, to Ireland.

I know the joke about the Royal visit to Ireland, and the ‘trolley’, etc. The relevance of that is indisputable. That’s the situation in healthcare, as it stands. But how does one improve that, . . . and not look at ways, to increase our customer base, to the healthcare industry here in Ireland? Especially, where specialty treatments are of concern. Maybe, this is just to dreamy stuff, we talk about at healthcare seminars, but I thought it was worthy of explanation at some length. BOH.

If the government did not own a 25% in AL, then:

1. The issue of what happens to AL would not be a political problem for tbe government as the next election approaches.

2. The question of finding the best business outcome for AL would not be hostage to the politcial question of how to win votes at the next election in north Dublin.

3. Air travel is a volatile business and even major airlines have gone bust in the past. If in the future the share price of AL falls substantially below the price offered by IAG today, this may cause considerable embarassment.

Of course, if you believe that the “best business outcome” would not be the best outcome for wider society then you might disregard #2.
And if you believe that politicians have special skills or expertise when it comes to managing air travel investments, then you might disregard #3.

€350 million is what it brings in — what’s that worth?
Well the ten year is now around 89bps, so we could fund €350mln tomorrow at a cost of 30mln per annum. And that is not *nearly* worth the unknown-unknowns that you are taking on by selling away the Aer Lingus assets.

The State actually appears to have stumbled into an excellent ownership relationship with a (potentially) critically important service provider.
Don’t screw with it.

Agree with the post 100 percent. But for the sake of argument, the problem that selling the stake is supposed to solve is that the stake and the overall value of the airline will have nowhere near the same value if and when

(a) a northern England or Scotland airport gets US pre-clearance, undercutting this EI advantage on trans-Atlantic, and
(b) someone figures a mode of entry which dramatically cuts trans-Atlantic fares, especially for return travel originating in the US, where margins are currently very high for the incumbents.

Think Glasgow gets pre-clearance for (a) and Norwegian Air makes the low cost model work, for (b). Then does Aer Lingus have the same business model?

Profits provide signals about consumers’ preferences, wages do not. Judging the value of an enterprise by the size of its wage bill was a feature of the Soviet economy.

Selling the remaining minority stake in the airline is a “value” judgement
Is the bid from IAG above the PV of the cash flows from a cyclical industry with a poor record of sustainable profitability?
If IAG goes hostile and buys out the other shareholders, could the state is potentially left in a minority position & at some time in the future this shareholding could be worth less than it is now
Is the state willing to stump up cash from the taxpayer to replace the fleet in the near term and if it does not what does an ageing fleet mean for service and emplyment levels?
Would Ireland be better off with an expanded Aer Lingus brand with more planes serving more locations and with more employees from a runway in Dublin rather than in MAnchester?
I respectfully suggest that the decison to sell the monority stake in an Airline we no longer control should be more about the the strategic interests of the country, the taxpayer, the airline and its employees and customers? Whatever happens, the lounges will still be there and the good professor will still be able to enjoy his Sav Blanc and cheese and crackers.

“Air travel is a volatile business and even major airlines have gone bust …”

The bigger they are the bustier they go! Aircraft use aviation quality kerosene, which if my organic chemistry is correct, is a liquid hydrocarbon fuel. Heavy crude does not contain much of these volatile short-chain hydrocarbons. Quite tricky to synthesize them from other short or long-chain hydrocarbons. Nice that.

Within two decades? only the 0.1% and the military will fly on a regular basis. It’ll be back to boat-and-train for the rest of us. Buffett bought some trains recently. Whose going to own the boats? Those pesky Greeks? Oh! dear!.

Is there a differ between spending your income v spending your capital? Gettin’ interesting, as they say.

“Profits provide signals about consumers’ preferences, wages do not. Judging the value of an enterprise by the size of its wage bill was a feature of the Soviet economy.”

Wage repression is like deleveraging. One company can do it but the system as whole cannot, since ultimately employees are customers. Profits and wages are yin and yang. You can’t have a healthy one without a healthy other . Huge issue upcoming in the US. Wall st expects wages to rise and they won’t.


IAG is doing ok now because the oil price is down. But it could go up again. It probably will. Can IAG manage AL better than AL management ? I dunno. Ask Madrilenos.

The big issue is the Heathrow slots and whether or not passengers from Ireland have access to them.

Stansted is not even remotely comparable.
And the UK rail system is a complete mess.

Surely any ballot would have to include non-customers of Aer Lingus? Existing customers, through their revealed preference, tell us that they benefit from the services offered by Aer Lingus. Existing customers are unlikely to favour change.

What about those who are missing out on consumer surplus on the services Aer Lingus does not offer or has decided to stop offering over the past few years? This group probably favours change (of services) but what ownership structure would they favour to give the best chance of that happening?

@JF: I’m not sure linking the full privatisation of BA to it’s ranking 17th in the airline satisfaction rankings you linked to is a good idea…

Many of the other airlines ranked above BA in the above rankings are fully or partially state-owned, e.g. Qatar Airways, Singapore Airlines, Emirates, Etihad, Turkish Airlines, Garuda etc.

In addition, the history of Air New Zealand (ranked just ahead of BA at 16th in the ratings you linked to) is worth examining in the context of the future of Aer Lingus. Air New Zealand was privatised in 1989 and renationalised in 2001 after running into financial difficulties (with the NZ government taking a majority stake in the airline). It has since gone on to become one of the most profitable and innovative airlines in Australasia.


“€350 million is what it brings in — what’s that worth?
Well the ten year is now around 89bps, so we could fund €350mln tomorrow at a cost of 30mln per annum.”

Something’s being debased there…

Anyone with the funds can bid. The pilots are in – but they have an interest in maintaining a quality cost base.


Agreed – the rankings tell me that public ownership doesn’t equate to a quality passenger experience and neither does private ownership.

What is really interesting is that Aer Lingus doesn’t seem to be doing very well in this ranking exercise. I guess AL can still say they are doing better than their main competitors on routes out of Ireland.

Eh folks – well those numerically challenged ones writing here – 89bps cost on €350m is actually just over €3m not €30m -making the case all the more compelling for keeping it.

However I’m reminded by Mr Buffett’s comment when he was asked ‘How did he become a millionaire ?’ His reply – ‘start out as a billionaire and invest in airline stocks, you’ll soon become a millionaire ‘

Nuf said – sell and be done with it.

AIB is going to pay 280m to the Government in May
350m is peanuts really.
It’s hardly going to make much difference to the Government.


€350 million is a huge amount of money when you consider how many better things there are to spend it on. I’ll give you another example. In 2014 the OPW had a capital budget of €45 million for flood relief. In the same year the State provided €70 million to local authorities to fix the damage caused by the January storms. There are numerous flood relief schemes still limping along that need investment now before the next floods cost us much more than a modest increase in capital investment would.

The only concern I have with selling the AL shares is what the Government ends up doing with the money. If it goes into the usual black hole from whence we support the retired Ministers deprivation fund then I’d agree that the T2 G&T lounge is a better use of the money.

IAG has the potential of increasing transatlantic business through Dublin via acquiring Aer Lingus or it could do it anyway and compete with Aer Lingus.

Ryanair has a bigger stake than the State’s Aer Lingus stake and it doesn’t give it much power. If Ryanair is forced to sell the stake IAG could acquire up to 75% of the equity and the State’s 25% stake would not give it any leverage on e,g. Heathrow slots.

Ireland has few international brands and Aer Lingus is one of them. It’s unlikely that a bigger group would dump it.

Our main whiskey brands are owned by a French company and Guinness has effectively been a British company since the 1930s. The black stuff was first brewed in London in 1722.

Tony O’Reilly often spoke about brands, having developed Kerrygold, and when he was at Heinz, Waterford Glass was the most prominent Irish brand in the US.

Waterford Glass employed 3,200 people in Ireland, at its high point in the 1970’s.

Glass making in Waterford dates from 1783-1851 and in 1947, Czech immigrant Charles Bacik, grandfather of Irish senator Ivana Bacik, opened a glass works in the city because of the reputation of the original glassware.

Tony O’Reilly discovered to his cost that a brand cannot survive on past glories.

James Jameson was a Scot and his eponymous brand is an important Irish global brand.

When I was young in Bandon I had an old neighbour who had once worked as a cooper in Allman’s Distillery, which at its peak had an annual output of a half million gallons but it closed during US Prohibition.

The Irish industry was once bigger than Scotland’s and durable brands are still needed when a traditional food and drinks surplus with the UK has become a deficit.

Scotch whisky exports at £3.9bn; Irish whiskey exports at €365m

I have to get a plane to somewhere almost every week for work, usually to the UK. Aer Lingus and the easy Heathrow/US connections make it possible to do the job from Ireland. RyanAir are fine but Aer Lingus serve better airports with better times and they’re not a lot more expensive overall.

It’s a small factor, but Aer Lingus keeps my job – and the tax I can contribute – in Ireland. There are plenty of us in a similar situation. The Aer Lingus connections I’m sure also are an advantage in attracting multinationals to our shores.

The current situation isn’t broken, why change it?

A modest proposal:

[1] toss a billion and regain 100% State Ownership

[2] Obtain ‘real’ valuations of Heathrow slots and the intellectual capital in the brand

[3] Do a loan deal with Ryanair for striker O’Leary to the end of the season

[4] Do a loan deal with IAG for ‘Come Back Kid’ Walsh to the end of the season

[5] Take over IAG before the end of the season.


Truth is that AL hasn’t been doing so well transatlantic. Too expensive and the competition such as Delta in particular but also United, American and others have taken significant market share. From a customer viewpoint, nothing particular favors AL. Many previous loyal US based customers like myself gave up on AL due to price primarily, but the service was poor enough also, particularly in business class during the recession years….not a patch on previous. AL frequent flier benefits were trashed when Mr. Mueller joined (good cost management maybe…..but it mattered to us frequent transatlantic fliers). Now a frequent flier on Delta, United and BA. When travelling coach, it was /is noticeable how crushed the seating was /is on AL….not ok at higher pricing.

Economically, scale matters in aircraft and fuel ordering for instance. Whatever about cash on the bal. sheet, aircraft replacement is an expensive business. Also, those current AL profits are a function of lower fuel prices.

Strategically, Ireland is being very well serviced from NA, and Europe. AL doesn’t add anything per se. If the others pull out /reduce, I would have no doubt some entrepreneurial “jet head” would fill the gap.

AL does work for some few. However, for instance, I have a sister who commutes from Cork to work in Frankfurt every week. It’s not direct, and the cheapest services are typically not AL. Also, Cork /Dublin /Kerry /other regional services are poor.

So, Kevin, your AL “nostalgia” doesn’t work for me.

@Paul: there’s nothing nostalgic about it, I fly it twice a week during term. I couldn’t do it on Ryanair, and I don’t think BA (which I quite like) would do the trick either — sometimes small airlines are flexible in the way that larger animals are not. And there are quite a lot of people like me.

It is true, I was thinking about European flights, not trans-Atlantic, when writing that post, since those are the ones I take. It *is* cheap within Europe by any reasonable standard. Last night’s flight cost me 99 pence sterling. Plus the taxes and charges that any other airline flying out of Heathrow would charge. You can’t really get a lot cheaper than that. But it doesn’t feel like a budget airline, and offers frequent fliers access to major airports and a good level of service.

As for trans-Atlantic — I usually travel steerage! I had to fly American recently to the US and hated it, I really don’t think the US carriers are any great shakes. But, de gustibus and all that.

Broadening out from AL though, I think that the real point is that consumers in Ireland are doing pretty well. You have two Irish airlines competing fiercely with each other and with foreign airlines like BA. Most niches end up being covered — for some AL is the way to go, for others Ryanair, and so on. Competition has been very good for the consumer. I’m not sure why we should want to reduce it.

Why do you assume that competition will be reduced if AL is sold to IAG? Ryanair and the others are still there competing, because it makes sense and is profitable. Can’t /Don’t agree with you on that.

American is a bit crap, agreed, but cheaper than AL….The better comparison is Delta which also provides a good /better service than AL. United is in between but has a very new fleet of aircraft.

I should add that I agree that people should consider the likes of Irish Distillers and whether foreign ownership was good /bad. In that case, being part of a bigger, international #2 world leader Pernod Ricard was a huge positive for Ireland, Irish Distillers, Jameson…and lead to others entering, supporting, investing in and expanding the Irish whiskey market, etc. internationally. Could not have been done organically, in such a short space of time.

This thread has given contributors a great opportunity to regale us with impressive travellers’ tales, but perhaps we could shed light on the question Kevin posed by rephrasing it:
What is the problem that holding on to the government’s shares in EI is supposed to solve?


Isn’t it simply solving the problem of how best to use a State asset? The NTMA, NAMA and countless other State agencies make these kind of decisions every day. Didn’t NAMA sell €5 billion of loans for properties in Northern Ireland last year in one transaction? I don’t understand the sentimentality about Aer Lingus. It’s the same raiméis you hear about the ESB – another State asset that should have been privatised years ago.

IAG is made up of BA and Iberia.
Oil prices are low but maybe artificially so


Iberia is the national carrier of Spain. Not the most solid economy. Ireland might do a good bit better than Spain over the next 10 years. I’m sure Tull and JF would agree. UK not great either. Shaky enough scraw. Deficit the big issue.

Could see IAG leaking money if Spain gets in trouble again. Ot maybe the UK will. ECB not convincing enough.

Walsh is not a great generator of value either IMO. Airline bus. is low margin at the best of times. Lot of risk on the downside.

Distress could force the company to sell lucrative assets eg Heathrow slots.
Maybe the Government is waiting for a better suitor.

The idea that the government should hold onto its stake in AL because (sometimes) the airline returns a profit is ludicrous.

The goverment already has the ultimate profit source – taxes.

A monopoly with an almost 100% profit margin.

AL, AIB and even the ESB can’t beat that!

I would hope that the Government has better insight than a lot of the half arfed neolib notions on this thread. How did the Telecom Eireann multiple privatisations work out ?

Short termism is the curse of the private sector.

The building Societies were all released into the private sector because the private sector is more efficient and all their capital went up in the great property bonfire of the valuation inanities.

Read Lex on the efficacy of M&A. A lot of it generates SFA in value.

Does Ireland need the Heathrow slots? Will they generate added on value beyond the AL balance sheet ? If so, what is the best way of securing that? Not IAG because “that’s the why”.

@Seafoid (and others)

If Spain and the UK are regarded as big downside risks, do you think that Aer Lingus will not also be affected by whatever set of events are causing the problem?

If you want a safe investment, then don’t invest in airlines. Historically they have a bad long-term record of profitability. Aer Lingus has had a couple of near-death experiences and as a taxpayer I don’t fancy having to do any bailing out the next time around.

The really big problem for Aer Lingus would appear to be one of scale: many airlines of its size (and greater – KLM) have sought to realise scale economies though mergers.

The other problem people and politicians seem to have with the proposed deal is that they think in their hearts that Aer Lingus is a national carrier and quasi-nationalised. THey should think with their heads.

@ John Sheehan

I think AF/KLM have the European demand deficiency problem. Etihad bought a stake in Alitalia and they have some in AL too. Maybe they’d have deeper pockets. The Middle Eastern airlines seem to be doing better than the old world ones.

Aviation is a notoriously cyclical business; a bit like bananas. Therefore the AIG price offered for Aer Lingus may be, right now, at its optimum. From a C/B perspective, one assumes that, on an all things being equal basis,the government would sell its share in the airline and allow AIG to assume corporate ownership of what is considered, ostensibly, [ahem!] as a symbolic Bit like selling the national cutlery…

Twelve or eighteen months ago, it might have appeared possible for an Irish government to justify relinquishing its share in – and, as such, any public romantic identification with – the so-called national emblematic airline. When you are stony broke; well then, Granny’s silver spoons assume a different complexion. It becomes less about ‘Granny’ nostalgia and more about immediate commercial advantage from disposing of her old spoons to the highest bidder, while simultaneously parading how good you feel about it, and how Granny, also, would have been proud of your decision.

In the run-in to a general election though, neither cost-benefit criteria nor any other economic data, related to the sale of Aer Lingus apply. This includes the emotional signification of dear Granny’s spoon. Hence, this thread might be better off discussing how economic criteria will have no bearing whatsoever on the government’s ultimate decision about its AL shareholding?

AL, and the sale of the government shares, is now part of the narrative of the next GE. Considering the disparity of opinion at local level, no Dublin- Cork –Shannon based politician, with the remotest sensibility of electoral self-preservation, is going to do anything except ‘kick for touch’. On the fate of Aer Lingus. The economics don’t matter. Besides, the narrative of the story keeps changing from AL jobs to ‘connectivity’ to the spurious value of Heathrow ‘slots’. You know that no decisive policy decision is imminent, or possible, when the story-lines are ever-changing from one day to the next.

The bigger picture is that in the run up to a GE, the government ultimately stops governing. Any ‘decision’ that potentially might upset a cohort of potential party voters will simply be relegated until after the next election. The problem with which we are all now confronted is that the current hiatus in decision-making capacity is occurring twelve months before any election is expected to take place.

The best strategy for anyone seeking a decision from the government is,thus, to hang on in there long enough. Inevitable, the politics of the Al decision may be far more important than its economics. Right now, SIPTU and its leadership are internally under real stress to relinquish their traditional ties with Labour in favour of alliance with Sinn Fein. What happens to AL is hugely symbolic within that context. the trades union/ worker position also has a crucial bearing on what happens next.

Awesome blogging Veronica. I can only, by way of pale imitation, add that a similar thing seems to be happening with repossessions – which nobody is allowed to mention are already miles and miles out of line with international comparators, and renters don’t vote.

Qatari recently bought a 9.99% share in IAG. Etihad have a 4% share in AL. Both Qatari and Etihad are state owned. Transatlantic business is very attractive to them.

I agree! However, with regard to renters, their numbers have increased, they are very cheesed off and they do vote.

The present government has largely defended a financially straitened version of the status quo. It seems that it is too late to remedy this error.

Meanwhile, the example of what may happen is being played out in real time in Greece.


The idea that rent-seeking is confined to the wealthier sectors of society is an illusion. The more pervasive it is, the worse an economy will perform. The Greeks seem to have brought it to a new level and for a clear reason viz. the lack of an independent and honest civil service, notably in relation to the collection of taxes. It is the contrary inheritance from the British administration IMHO that has enabled Ireland to recover from repeated errors of economic judgement by elected representatives. It is also what would make some of the absurdities contained in the letter by Varoufakis to the Eurogroup impossible. The capacity to speak truth to power survives although it has been eroded. The need to raise revenue has been the catalyst in bringing this about.

An opportunity for the necessary radical changes on this occasion has, however, been missed. The fandango around Aer Lingus is but another example.

Yes both are state owned but neither state is democratic. But I guess for most lefties, state trumps democracy every time.


The sale proceeds could be used far better elsewhere to help save lives of Irish people. That’s a subject of very active debate among us Irish and Irish Americans here in the US.


Recent suggestion here (by me, being supported by others, in NYC) that Irish financial support in the US should perhaps be directed to this area. However, one comment from Ireland was that that would leave the Irish Govt and HSE management off the hook. Crap. How do you weigh lives of Irish people versus your ‘comfort’ experience on AL, etc. Even the politics of it. Before you answer that, imagine you have cancer and are relying on the Irish public system for treatment…..or imagine one of your loved ones needing critical care. Does it bother you at all that the public system in Ireland is in total chaos and people are dying as a result, primarily due to lack of efficient and accountable funding? Better to sell AL and properly use the proceeds to save people.

I have made a proposal here for the funding of the Bon Secours Health system (Dublin, Cork, Galway and Tralee hospitals). The Bon Secours HS is a private delivery platform but is the only significant private, Not for Profit and Charitable health group in Ireland. The Bons Secours HS was previously the major partner with the HSE in delivering the National Treatment Purchase Fund (NTPF), the Irish Government’s initiative to shorten Irish public hospital waiting lists by having public patients treated in the private Bon Secours HS. This national scheme was initially HSE funded but has, I understand, completely broken down due the recession and resultant lack of funding.

That proposal would bypass the dysfunctional public system and Govt /HSE waste. Importantly, while it too has been negatively affected by the Irish economic situation, the Bon Secours HS is not dysfunctional like the public Irish health system, and remains an efficient, progressive and properly functioning healthcare platform in Ireland.

Let’s see if it can happen (depends on others…not my area, but I feel very strongly about the subject….as do many here). Can’t say much more pon that, but it has been put to very senior Irish people here in the US.

I’m also with Colm McC that the politicians should stay out of the running of an airline.

@ Tull: “But I guess for most lefties, state trumps democracy every time.”

Eh? Been away on the hols, have we? Take a careful look at some ‘Righty’ admins lately? They would make Orwell and Berneys proud, they would.

@DOCM: “The idea that rent-seeking is confined to the wealthier sectors of society is an illusion.”

True. Our home grown varieties are also quite something. They want increased spending on …………. (insert your own favouite boondoggle). But simultaneously, and at the same time of course, they demand a reduction in taxation. That takes real chuzpah!

@ Paul W: Paul, please go easy on that KoolAid! Some of DOCM’s rent-seekers are proposing we should have a three-tier health delivery system: private-private; private-public and public-public. And progress appears to be satisfactory – so far anyways! They have a health-care cost-inflation problem they need to fix first. Prognosis on that one is poor.

The AL propaganda saga – for that is what it is. Is a nice distractor. “Keep it up lads!” – it is lads? Or would you prefer TomCats pi**ing on their corners?

For big macro decisions no country is democratic. Who voted for QE instead of giving the money directly to the public anywhere? Or austerity? Or tweaking tax systems to the specifications of the big 4 consulting firms so the money trickles upwards?

State vs private ownership goes in and out of fashion. France’s 30 glorieuses were largely planned. The EU is built around private sector better now but it won’t be forever. Especially if other countries doing better follow different rules. It depends on how much rent seeking each model involves.

Varoufakis continues to put his game theory skills to the test!


It is not clear what the referendum would be on. (The record has, apparently, been corrected to the effect that it is not membership of the euro he has in mind).

No decision from the Eurogroup is likely except on the basis of a detailed examination of the proposals at a technical level by representatives of the “Institutions”. In Athens?

After “Grexident”, the latest term in use – notably in the German media – is “Graccident”. The possibility of such is rising by the day.

@ DOCM: How abouts you re-position your microscope and focus on the achordata species which populate the Merrion Street environment? And try not to confuse the objective with the eyepiece: x10 power should do the job nicely.

And – also. Brownian Movement should not to be mistaken for an active life-form. Is random motion indicative of conciousness? The use of Game Theory app requires more than a single functioning neuron and at least two sentient participants. Do we have lift-off?

This made the news list on jesse’s cafe menu: http://rt.com/news/238509-rte-biased-reporting-protest ???

Contemplating the Labour Party’s present attitude towards the ownership of Aer Lingus, we would do well to read Tom Garvin’s account of the saga of the transatlantic service due to start service on St Patrick’s Day 1948.
This was one of Sean Lemass’s pet projects. Offices had been opened by Aerlinte / Aer Lingus in New York and Boston, five Constellation aircraft had been purchased, using scare US dollars, crews were trained and proving flights completed.
However, after the 1948 elections the Labour Party refused to join the coalition government until the proposed transatlantic service was cancelled. The reason given was “Only rich people flew in aeroplanes”. The five Constellations were later sold to BOAC for sterling. About 200 Aerlinte / Aer Lingus staff were made redundant.

Irish transatlantic services were not launched until 1958.

See Tom Garvin, Preventing the Future: Why was Ireland so poor for so Long? Gill & Macmillan, 2004, Chapter 3.

Courtesy the Guardian running blog.

Describing Greece’s finance minister as “dangerous,” the main opposition party’s parliamentary spokesman Kyriakos Mitsotakis called this morning for Yanis Varoufakis to be replaced.

In a clear ratcheting up of the pressure on the leftist-led government, Mitsotakis said the finance minister’s tendency to shoot from the mouth was not the way to conduct “proud negotiation.”

The conservative New Democracy MP told Mega TV:

“With what Mr Varoufakis is doing, he is dangerous for the country and the best thing that the prime minister can do is replace him as soon as possible.”

“Every time he opens his mouth he creates problems for the negotiating position of the country. Mr Varoufakis has managed to do something unique which is to get all of Europe [to support] Mr Schäuble,” he said referring to the German finance minister.

“With endless interviews you do not conduct proud negotiation.”

Athens, Mitsotakis said, had become isolated within the family of eurozone nations.

He also criticised the “unclear and ridiculous reforms” which Varoufakis proposed last week [including sending members of the public undercover to help spot tax evasion].

“Greece is desperately isolated, it is alone. [Varoufakis’] proposals range between being unclear to ridiculous, provoking laughter when we talk about wiring up tourists to clamp down on tax evasion.

And all the while the country is being driven to recession and revenues are tragically behind.”

The Greek finance minister had to go because he was “unstoppable and impetuous,” Mitsotakis insisted, adding:

“He doesn’t know what he is talking about.”

Quite an attack on the economics professor, who we should hear from later today in Brussels….

@ Seafoid

“Who voted for QE instead of giving the money directly to the public anywhere? Or austerity? Or tweaking tax systems to the specifications of the big 4 consulting firms so the money trickles upwards?”

The Irish public? Pretty much all of these were on the FG/Labour manifestoes, were they not? Either directly or indirectly.

The proposed takeover involves a huge amount of money, and presumably large bonuses or pay-offs for executives on both sides. I always view politicians supporting multi-millionaire business executives with a jaundiced, sceptical and suspicious eye. I would be particularly suspicious of opposition politicians who come out in support of the transaction thereby giving needless cover to the Government on a political hot potato. Why would somebody do that?

Even if such a transaction does not result in political donations from people so impressed by the government’s acumen and integrity and doing what those people want, there is still a danger that the proceeds of sale could be seen as a useful slush fund in the run up to a tricky election where politicians’ tendency to buy the electorate (remember Noonan’s taxi comp wheeze?) is hampered by EU rules.

People should always be conscious that there is a huge bias towards mergers and acquisitions for executives and their legal and financial advisers, if not for shareholders. Mergers and acquisitions not only feed egos but they lead to bonuses, pay-offs, professional fees and gravy all round.

The only half decent argument in favour of selling is the danger that Aer Lingus will not be able to renew its fleet if it does not merge. I have seen no evidence to back this up and I do not see why such a task should all of a sudden become so difficult for a profitable airline. I also see no reason why being part of a larger organisation should help once Aer Lingus’s levels of profits are comparable for its size. Indeed there is always a danger in a large organisation that failure in one section will lead to the axe falling elsewhere, and particularly in less core markets.

That criticism may be accurate but it is coming from a source that has no cred in the eyes of the Greek electorate. The funny thing is though that the average Greek five eight is expressing full confidence in his/her govt but seeking to put their hard earned cash over the wall.


I have no illusions on that score. The significance of the intervention lies in its timing and the likely political calculation that the time was ripe to wake up the electorate from its daydream; not that many believed in it as evidenced by the manner in which their cash has flown the coop. And to say out loud what most must now realise with regard to the competence of their MOF (and of those advising him).

“The conservative New Democracy MP told Mega TV:
With what Mr Varoufakis is doing, he is dangerous for the country and the best thing that the prime minister can do is replace him as soon as possible

Dec 12 2014


“Greek lawmakers face a tense weekend as they decide whether to rally behind the premier’s presidential candidate or risk triggering an election that could bring the leftwing Syriza party to power.
Antonis Samaras, the prime minister, raised the rhetorical stakes on Thursday, warning his centre-right New Democracy party that Greece risks a “catastrophic” exit from the euro if parliament fails to elect Stavros Dimas, a former EU environment commissioner, as president.”


When did voters get a choice between helicopter drops to individual bank accounts and QE ?

General William Westmoreland once observed “As the senior commander in Vietnam, I was aware of the potency of public opinion – and I worried about it”

@Tull / DOCM

“ECB executive board member Benoit Coeure recently said that he was looking forward to working with Greece to complete a review of its bailout, but time is running short.”

“In interviews with Belgian media, ECB governing council member Luc Coene appeared to question whether Greece belongs in the European economic and monetary union.

“When I hear certain declarations of the Greek government, I ask myself: ‘What are they still doing in this mechanism?’” he said. He also told the Belgian daily De Tijd he believed Syriza had “made promises it cannot keep,” adding the Greek public would “understand quickly that they were deceived by false promises”.

Two worthy contributions from ECB board members, once again.

There are a few things to remember:
The vast majority of people in Greece, and in most other countries, have hardly a bean and are in no position to transfer funds anywhere. [The minority who have wealth have indeed transferred it outside of Greece, just as the Irish minority transferred funds out of Ireland in 2010.]

The ECB have clearly engaged in a spate of activities and statements to encourage funds to leave Greece, thereby increasing Greece’s dependence on ELA, that the ECB controls. Bringing the hound to heel is the object of the exercise.

Not very pretty stuff from the ECB, the EZ central bank.

To his credit, P Honohan has not engaged in anti-Greek rhetoric, but no doubt he will have received more than a little encouragement to do so.


I see this blogs favourite neo fascist minister for defence is threatening to herd migrants over the Greek borders into Central Europe. Maybe the Greek govt will use the rail system for this purpose. I am sure the comparisons between this govt in Greece and that of Milosevic cannot be far away.

@ Tull

best response I heard on that one so far was “Via Bulgaria? Best of luck with that.”

@ Tull: This is a thoroughly unecessary, thoughtless, ignorant and quite disgraceful comment.

“I am sure the comparisons between this govt in Greece and that of Milosevic cannot be far away.”

I most unrespectfully recommend you read up on the unfortunate, violent and very bloody 20th. century history of the Balkans. All are by Misha Glenny.

‘The Re-birth of History: Eastern Europe in the Age of Democracy’, (1990).

‘The Fall of Yugoslavia: The Third Balkan War’, (1992).

‘The Balkans 1804-1999: Nationalism, War and the Great Powers’, (1999).

Brian P Woods

“I see this blogs favourite neo fascist minister for defence is threatening to herd migrants over the Greek borders into Central Europe…..”

Not my favourite Greek minister, but he is probably wondering why Greece is acting as the unpaid sentinel on the borders of Europe. Italy is also asking those questions. Other European countries contributed a few bob after one particularly bad drowning incident, but have now put their money back in their pockets, and left the problem with Italy.
Both Italy and Greece would be well within their right to send either the full bill to Brussels, or the immigrants, via eurorail.

@ Tull

how much do you think Ireland should contribute to Mare Nostrum 2 ?
And the EU – how will it be able to deal with the challenges of Russia and immigration if the EZ collapses ?

J Stark outlines the incoherence of the status quo

“From this perspective the most important principles are the primacy of price stability; the promotion of competition in all markets; the protection of property rights; freedom of contract; and the idea that individuals should bear the risks of their own decisions and the losses of banks should not be borne by the whole of society. The principle of individual responsibility applies to Europe, too — at least until a political union has been created and democratic control ensured”

As an ex Aer Lingus employee a number of comments on the topic.

i) Our research showed that the Irish consumer had a “hot” relationship with two Irish corporations – Aer Lingus and RTE. They felt they owned them and related to them in a family type sense. A test of this – ask a random sample who is CEO of Electricity Ireland and Aer Lingus. Electricity Ireland is far larger and more important to the Irish economy.

ii) The trade union posturing on this issue is pathetic. In the last 15 years Aer LIngus has reduced in manpower by approx 30% and its average hourly wage rates (category specific) by approx 10%. The trade unions have afforded scant protection to their members over this period. Now they want IAG to give cast iron guarantees to provide the protection they themselves are paid to do and which they clearly have failed to provide.

iii) The cyclicality of the airline business is well established. Aer Lingus will get into financial trouble in the future. The government is now precluded from investing in such circumstances (even if it wanted to). Just how does does it propose to deal with such events? Its just another case of muddling through – avoid the current decision – and hope some white knight will turn up in the future. In these circumstances Aer LIngus shareholders (including staff) are likely to get a far worse deal than that currently on offer.

iv) IAG may well not be the best option for Aer LIngus – but it remains the most likely. Certainly other European options (Lufthansa or Air France) would be far more likely to decimate the Heathrow operations or possibly sell the slots. In this regard the connectivity issue (really a Shannon and Cork) issue is much better protected with an IAG deal. Imagine what Lufthansa’s and Air Frances’s partners would make of the morning Cork and Shannon Heathrow slots for use by Delta and United for transatlantic operations.

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