The Irish Government is expected to give the nod to the privatisation of Aer Lingus by the end of April, with an initial public offering (IPO) slated for either June or September.
Dublin is believed to be looking to reduce its 85% stake in the carrier to 25% through an IPO and the issue of new equity, with the offer raising between €600 million ($730 million) and €800 million and new equity of €300 million to €400 million coming in. “There is tacit approval from the relevant ministers,” says one source close to the privatisation process.
The government commissioned a study last year to examine the different types of transaction, with an IPO chosen as the preferred vehicle for raising funds for fleet renewal and ensuring key strategic needs, such as continuation of important long-haul routes.
While the idea of a June floatation has been mooted, this is seen as a tight deadline, with the IPO more likely to take place in September, once the quieter summer period is over.
Previous plans to sell off Aer Lingus have fallen foul of political obstacles, and there is still considerable union resistance to the proposal. However, with employees holding 15% of Aer Lingus, a floatation would provide workers with the prospect of capitalising on their equity once the stock became tradable.
Privatisation would also provide an opportunity to deal with a pension deficit estimated to be around €200 million. Initial plans for the government to fund this as part of the sale process have been ditched on the grounds that Brussels would almost certainly view this as state aid. The carrier has made it clear that it would seek to use the privatisation to deal with the pension deficit.
Analysts point out that this would still leave Aer Lingus with enough balance sheet strength to fund a planned €2 billion fleet renewal programme. The airline is planning to double its long-haul fleet from seven to 14-15 aircraft, and grow its 27-strong short-haul fleet by some 60%.
This would have to be funded through the proceeds of a privatisation, leaving the carrier vulnerable if this does not go ahead. “Standing still is not an option,” warns one analyst.
With the government now behind the sale of Aer Lingus, there is at least clear political support, which hasn’t been the case in the past. There is also a sense of urgency, driven by the favourable market conditions and the fact that there is a general election looming in May of next year.
In the meantime, Aer Lingus has firmed up its letter of intent to purchase two Airbus A330s as an interim measure, while the most militant of the two main unions, SIPTU, warns of industrial action as part of what it terms an “anti-privatisation” campaign. ■
COLIN BAKER / EDINBURGH
Source: Airline Business
