Financial and institutional investors may be key to the future of Aer Lingus, according to Policy Institute study launched by Dr. Garret FitzGerald

July 22, 2004

With the latest developments surrounding Aer Lingus including recent discussion of a management buyout, the potential privatisation of Aer Lingus raises many questions, notably:

• To whom should Aer Lingus be sold?
• Who should be involved in the decision-making process regarding the sale?
• To what extent should the State be involved in the privatisation process? Should its role extend to the granting of state aid to the company?

Author Raj Chari examines these questions in his study, State Aids in the Airline Sector: a comparative analysis of Iberia and Aer Lingus and outlines a number of possible directions for the company. The study is the 13th research study in the series 'Studies in Public Policy' published by The Policy Institute at Trinity College Dublin, which aims to bridge the gap between the academic and professional policy communities and to make a real difference to public policy debate in Ireland. The study was undertaken while Dr. Chari, who lectures in the Department of Political Science in Trinity, was a Visiting Faculty Research Fellow at The Policy Institute in 2002/2003.

While a number of state owned companies in Ireland have already been privatised, the potential privatisation of Aer Lingus raises a number of issues specific to the airline sector. Chari's study compares the experience of Aer Lingus to-date with that of the former Spanish state airline company, Iberia Airlines, privatised during the 1990s. In particular, the study analyses the process by which major decisions surrounding the privatisation of Iberia Airlines were reached and the type and extent of involvement by relevant stakeholders in this. More significantly, given the recent debate surrounding the
future of Aer Lingus, the study draws on its analysis of the privatisation of Iberia to
suggest a number of policy recommendations for the consideration of those stakeholders
involved in the management of Aer Lingus.

Contemplating the idea of a public flotation, Chari suggests that a key benefit of such an option is that it allows citizens to 'buy into' their national airline. However, even if flotation of the company is considered, Chari argues that it seems desirable given Iberia's experience that a significant percentage of Aer Lingus should be sold to financial and industrial investors, albeit with a cap set on the percentage of the company that can be sold to any one investor. Following the example of Iberia, the industrial partners may include other major carriers, while financial investors may be reflective of different banking and commercial interests that are either native to Ireland or from within the European Union. European Union regulations requiring that no more than 49% of a carrier can be sold to investors outside of the EU are also significant in this context.

If privatisation is the chosen route, Chari considers how the sale should be organised while acknowledging that this is a potentially contentious issue given that the issue at hand is the sale of an 'enterprise' which belongs to the 'people.' The author suggests that if one follows the example of Iberia, then the future decision-making process would be centralised and involve a much smaller number of stakeholders such as the Department of Transport and management of Aer Lingus. This option offers the potential to cut 'red tape' and 'speed up' the privatisation process, as these stakeholders would effectively lead and co-ordinate the making of policy in this area. However, these benefits may be at
the expense of the accountability and transparency of the process as other stakeholders may find themselves excluded from the decision-making process with little opportunity to influence the future direction of Aer Lingus.

The study is the 13th in the series 'Studies in Public Policy' published by Trinity's Policy Institute. The series aims to bridge the gap between the academic and professional policy communities and to make a real difference to public policy debate in Ireland.