The momentum behind the planned privatisation of Aer Lingus appears to be slipping, with some analysts predicting a decision may have to wait until 2007.

Against a background of union opposition to the planned privatisation, coupled with a poor showing by Ireland's ruling Fianna Fail-led coalition government in recent elections, analysts do not see much chance of a decision being made before a general election in two-and-a-half years time.

Since the privatisation of telecom provider Eircom, which left half-a-million small investors out of pocket, Ireland has seen a spate of privatisation programmes stall, including the planned sell-off of airport operator Aer Rianta.

There has also been wrangling within the governing coalition over the future of Aer Lingus, with Prime Minister Bertie Ahern reported to have described a proposed management buyout as "inappropriate", while his deputy, Mary Harney, says all options should be kept open. Aer Lingus chief executive Willie Walsh has withdrawn a proposal that would have involved a management buyout.

In the meantime, Aer Lingus is looking to purchase new aircraft for both its short-haul and long-haul operations. For short-haul routes it has seven Airbus A320s on order from Airbus for delivery by the end of 2005, which analysts say can be funded by cashflow, particularly as the narrowbody fleet will move from a mix of 30%to 50% leased.

Finding cash for seven or eight long-haul aircraft is likely to prove a little trickier, for a fleet which is already half taken on lease. "They can do it at a stretch," says one Dublin-based analyst. "The real question is what happens if they want to go into expansion mode?" The government can invest in Aer Lingus under European rules, as this would be deemed rational investment rather than state aid. Whether it would want to is unclear, however.

Meanwhile, moves by Aer Lingus towards a low-fares business model have prompted a review of its membership of the oneworld alliance. The Irish carrier is cutting out many frills, including free food and business class on short-haul routes, raising speculation that it may no longer meet the alliance's minimum service levels. In September British Airways removed its code on point-to-point Aer Lingus flights to Dublin.

However, Irish analysts say that talk of an imminent departure from oneworld is premature, with the possibility of setting a lower criteria for shorthaul services. "Some other carriers in oneworld may want to do the same as Aer Lingus," says one analyst. Oneworld chief executives are scheduled to meet in Dublin for a summit in November.


Source: Airline Business