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The case against privatisation

 On November 17. 2004 the Taoiseach told the Dail, “I am not just going to click my fingers because right wing economists believe we should privatise.  We are an island nation, heavily dependant on trade, overseas investment and tourism.  There are very important strategic issues which have to be satisfactorily resolved."

A lot has happened since that Dail statement and in the year of Aer Lingus’s 70th birthday, the national carrier is set to be delivered to the private sector, where shareholder interest will be paramount over any lingering concerns that the Taoiseach has for the national interest in this open island economy. 

Despite the chorus in favour of privatisation from the political, business and media establishment, no case has been made to the Irish people as to why one of the most profitable, productive and competitive airlines in Europe is to be handed over to private investors.  There has been little debate in the Dail and no evidence that the Government and their TDs have given any real consideration to the concerns of the electorate and the consumer, far less the workforce - who have witnessed the results of privatisation elsewhere.

Where the question has been raised, the majority response from ordinary people at grass roots level has been clear.  In a recent RTE poll more than 50% of respondents were opposed to privatisation and over the last year most major local authorities throughout the State have passed unanimous resolutions, on a cross-party basis, against privatising the airline. 

Against such a backdrop, and with the spectre of Eircom and indeed Irish Ferries - another privatised State company - looming over their shoulders, why then has the Government proceeded as it has?.

All are agreed that Aer Lingus is not, a 'basket case' or a survival issue.  For nearly every year of its existence it has posted a profit.  Thanks to the sacrifices of the workforce it successfully weathered 9/11 when other carriers such as Sabena and Swiss Air went to the wall.  In the intervening period, accumulated profits have been in the order of €350m to- date, with the figures for this year projected to be even more encouraging than 2005, based on the half year results. The workforce has delivered a series of change programmes since 1993 and employee numbers have reduced by 43% since 2001 with a corresponding 45% reduction in seat prices to the passenger.  In addition, more than 50 new short haul routes have been offered to the consumer. Overall, the success of the airline has been undeniably achieved on a stable platform of public ownership and control and workplace partnership.

Against this success story, what more could privatisation do that has not already been achieved?.  For the Government and the proponents of privatisation, the uncomfortable truth is, not much.  So, why is there such a lemming-like rush by the Government and the Aer Lingus executive management to privatise - despite warnings even from those who favour flotation that now may not be the best time? 

The argument which provides the basis of the proposal, is that Aer Lingus needs investment for fleet expansion - not for rescue or survival.  The airline says it needs €2bn to purchase planes for delivery up to 2012 in order to expand its long haul and short haul fleets.  It is important to note at this juncture that Aer Lingus has already provided for short haul fleet replacement from its own resources and has further made financial arrangements for the purchase of two new long haul aircraft to be delivered in 2007.  What is being proposed here is aircraft for expansion to routes which do not yet exist except in terms of possibilities.  Fundamental to the programme for expansion, particularly into North America, is the need to secure a US/EU bilateral agreement which would allow carriers such as Aer Lingus greater access  to the US than currently.  This was to be achieved by October of this year and won’t now because of commercial and political opposition in the US.    

This, of course, would not effect any ambitions the airline has to expand eastwards or south, but the fact is that, to date, the only certainty is the recently commenced service to Dubai which is being provided from within Aer Lingus’s existing fleet resources.  However, we would not want to give the impression from the trade union point of view that we are against development and expansion particularly when we fully support such measures to underpin viability and jobs.  Nor do we deny the need for Aer Lingus to access equity and capital to provide such expansion.  Where we differ fundamentally is how that money would be provided and whether it is necessary to risk all the gains made to date by the workforce and the community.  With one or two very notable exceptions, the much vaunted private sector has not been able to prevent substantial failure within the airline industry generally, with five of the six big US Carriers in Chapter 11 (i.e. bankruptcy to us in Europe).

 The Government proposal for flotation of the national airline - now mooted to take place at the end of September 2006 - is that the State would sell off approximately 55% of its current holding of 85% in Aer Lingus.  It is important to note that not a cent of the proceeds would go to Aer Lingus, but rather to the Exchequer.  In order for Aer Lingus to secure money for planes they will have to issue new shares to the value of €400m (a further €104m is to be raised to plug a hole in the pension fund). Aer Lingus estimate that the €400m thus raised will give them sufficient financial leverage to raise the balance of €1.6bn required for the projected expansion programme. 

Of course there is an alternative.  If all that is fundamentally to be achieved from flotation is €400m then surely it would be open to the State to invest that relatively small amount to provide Aer Lingus with the same financial leverage that would be achieved by a market flotation, without the attendant risks of handing over such a strategic asset.  After all, the Government has already committed €34.1bn to Transport 21 and the State can do this without contravening European Union State aid rules.  However, the Government refuses to do so - not for commercial reasons, but rather for political ones which have much to do with an ideological commitment to the privatisation of state owned enterprises, regardless of the social and economic consequences.

Leaving aside any fundamental opposition from opponents of privatisation, such as this Union, even supporters of the Government’s proposal have pointed out a number of major concerns about flotation at this time.  The absence of any US/EU Open Skies Agreement places a major question mark over expansion plans for long-haul.  Oil prices are at up to $70 a barrel and volatile and airline investor nervousness is further underscored by the heightened global security situation.  The recent Air Berlin flotation could be most charitably described as having just about “got away” – and considerable comment has been made as to whether the investor community would have confidence in the new management team.  In summary even supporters of floatation appear to be of the view that flotation at this point would not be a good value proposition.

All of this points in one very clear direction.  There is no case for privatisation which is better than the current commercially profitable mix of public ownership and workplace partnership. The Government can legitimately invest, and the strength of the company’s balance sheet and financial profile can do the rest. Failing that there is still the ICTU proposal for a State Holding Company as a vehicle to raise funds within the context of public ownership.  At the very least these question marks should be sufficient for the Government to take time out and reappraise their strategy before it is too late and before national interests and the interests of the ordinary tax payer. travelling public and Aer Lingus workers are put at risk for the dubious merits of a bargain basement sell-off.  Incidentally, the Government’s claims to special measures to protect national interests, post privatisation, stretch no further than the exercise of ordinary company law. 

It is not as if we are unaware of the experience of others.  We have seen what has happened with the privatisation of bus and rail transport in the UK.  Further afield, New Zealand - another island nation - had to rescue their national airline from a disastrous privatisation experiment at enormous cost to the ordinary tax payer. 

These are the indisputable, and, for the Government, unpalatable facts which even at this late date bear hard headed examination.  Apart from the Government’s privatisation agenda, what passes for policy on the future of Aer Lingus could be classified as a desperate optimism of Micawber like proportions based on the hope that “something will turn up.”

 It won’t.  And the concerns which exercised the mind of the Taoiseach back in November 2004 may come back to haunt him like another famous character from Dickens.