I am very grateful to Senators for agreeing to take the Bill. I am aware that there was a fuss, which was Members' entitlement, as it was not on the agenda.
The purpose of the Bill is to facilitate the sale of shares in Aer Lingus at a time to be determined. The Government authorised me on 14 December 1999 to initiate a process leading to a public offering of shares in Aer Lingus. Since the Government's decision the Minister for Finance and I have engaged Salomon Smith Barney and AIB Capital Markets as the joint global co-ordinators and underwriters for the transaction. During the past few months officials from my Department and the Department of Finance and the advisers have worked closely to prepare the necessary groundwork for the IPO. The enact ment of the Bill is a crucial element of the process. I hope it may be possible to complete the offering in the latter half of the year or early 2001 depending on market conditions and the satisfactory finalisation of all preparatory stages for the IPO.
Aer Lingus has made and continues to make a significant and valuable contribution to our economic and tourism development by providing a range of quality services to destinations in our main markets in the United Kingdom, Europe and the United States of America. It is the Government's wish that the airline should continue to play this key role for the future, irrespective of its ownership status.
Irish people at home and abroad have taken great pride in the achievements of the national airline since its formation over 64 years ago. It has been clearly identified with our image as a nation at home and abroad and has in many ways grown up with the State. Its strength has always been the quality of staff and the warm and personal nature of the service which they provide. I am confident the company will long continue to provide this service for its customers.
Since its establishment in the mid 1930s with one small propeller aircraft serving one route – Dublin to Bristol – the airline has developed into a thriving and profitable company earning good profits, employing over 6,200 people and operating 38 aircraft serving 34 destinations. In 1999, it carried over 6.5 million passengers. The company was structured into the present Aer Lingus Group plc in 1993 as part of the major restructuring programme commonly referred to as the Cahill plan. The restructuring period was a traumatic event for the company and staff. It involved cost savings, rationalisation, a once off cash injection of £175 million by the Government and the divestment of non-core assets. It could be said that the significant change involved led in essence to the creation of a new airline.
I do not underestimate the impact of the crisis at that time. All of us in public life and many others will remember it and the various episodes which led to huge trauma for everyone, including those who worked in the company, those who were in Government or Opposition and those involved in the decision making process. I put on record my appreciation for the work done, the challenges met and the opportunities taken by both parties since then to produce the healthy, vibrant company of today.
The trading performance of Aer Lingus has been positive over the last number of years, bolstered by the strong economic conditions in Ireland. Furthermore, the board and management have identified clear opportunities for profitable development well ahead of the forecast average growth for the sector internationally. This growth will be achieved through further development of existing routes, through capitalising on the good location of hubs at Dublin, Shannon and Cork and through the development of enhanced services in conjunction with its partners in the Oneworld alliance.
I welcome the US decision to approve Aer Lingus's code-sharing with AA, American Airlines, one of its alliance partners, on routes to New York, Boston, Chicago and Los Angeles. I also welcome the news of US approval for Aer Lingus to operate on a new route to Baltimore, where services will commence in September next. This brings the number of routes the company operates to the US up to five.
Notwithstanding this positive performance and the forecast for continued economic growth in Ireland, the Government wishes to ensure that the airline is fully and clearly positioned to compete successfully in the changing global air transport market and has the ability to respond effectively to the cyclical nature of the industry. The Government is satisfied that there are no longer compelling economic reasons underlying State ownership of Aer Lingus. The availability of private sector capital is now far more widespread than when the airline was originally set up and there is no shortage of operators willing to take on commercially viable routes.
Across Europe, Governments have withdrawn from direct control and/or ownership of airlines. Privatisation of former flag carriers, such as British Airways, Lufthansa, Air France, KLM and TAP has either occurred or is underway. The only state airline in the medium to large size, other than Aer Lingus, which has not introduced private capital to date, is the Greek airline Olympic Airlines. However, it is understood that it too is now being prepared for privatisation.
The air transport industry is particularly dynamic. It has been challenged over recent times by the opening of the European market, the adjustments required to deal with the new competitive environment and the strategy being pursued by the US for open skies policies. We have a particular policy in this regard which we do not intend to change.
In making its decision for an IPO, the Government had regard to the aviation industry's response to change, including alliance consolidation, ownership changes, competition from low cost carriers and accelerated technological innovation. It also had regard to the significant capital needs that will be required by Aer Lingus, not only over the coming years, but shortly. In its report "Strength through alliance" published in April, 1999, which recommended entry to the Oneworld alliance, Aer Lingus identified a need for equity to meet existing growth plans, including the major fleet development programme currently underway, as well as to maximise the potential benefits of the alliance.
Advisers appointed by the Minister for Finance and I who examined this matter at the time broadly concurred with this view and concluded that a minimum of £150 million was required to fulfil the company's needs going forward. That is based on the fact that the ratio of airplanes on hire and those owned is not tilted favourably in the case of Aer Lingus and on the clear need for massive capital injections to ensure that the airline can invest in the necessary airplanes to enable it continue to compete satisfactorily and, most importantly, to enable it fulfil now the challenges and advantages facing it in the Oneworld alliance.
The Government's strategy for Aer Lingus is being undertaken in consultation with the Aer Lingus management and unions. I have no doubt that this strategy will secure a strong and viable Aer Lingus going forward, continuing to serve Ireland's main markets in the UK, Europe and the United States. I met with union representatives shortly after the Government decision. This was followed by a series of contacts primarily between advisers from both parties, which were helpful in shaping a framework for an ESOP. I believe that these contacts should now give way to formal discussions and I have written to the Aer Lingus unions inviting them to engage in formal discussions on an ESOP in the context of the IPO.
Aer Lingus employees already enjoy the benefits of a profit sharing scheme implemented as part of the 1993-6 restructuring programme. The scheme was put in place by the then Government in recognition of the additional contribution asked of the workforce in the implementation of the Cahill Plan. Under the scheme, eligible employees are entitled to receive the equivalent of 10%, approximately £24.4 million, of the issued share capital of Aer Lingus at 31 December 1995, earned out of profits, of which 5% is by way of shares and 5% by way of cash. In the context of the IPO, the Government has authorised me to discuss an ESOP which would give the staff a stake of up to 14.9% in total, in the airline. I look forward to working with the staff representatives on this matter over the coming months.
Turning to the main provisions of the Bill, section 1 is the definitions section and is self explanatory. Section 2 and the Schedule provides for the repeal of the existing legislation governing Aer Lingus. Section 3 provides for the sale of shares in the airline. Section 4 is intended to enable the company to issue and sell shares. Section 5 provides for agreements relating to the sale of shares in the airline.
Section 6 provides that with effect from the commencement of this section, the scope of the Worker Participation (State Enterprises) Acts will no longer apply to the company and any worker director holding office on the board at that time will cease to hold such office. By law a company emerging into a flotation process is not allowed avail of the provisions of the Worker Participation (State Enterprises) Acts because they do not cover such a company. As in the case of Telecom Éireann, we were able to agree an arrangement with the unions. It may not have been perfect but it met what was needed at that time. There has not been an advancement on that, but in the talks with the unions, which I hope will commence when they reply to my letter to them, I hope we will include this as an item on our agenda. I intend to try to work out with the unions an equitable arrangement, as I was able to do with the Communications Workers' Union with regard to Telecom Éireann. It remains to be seen if a different type of formula will emerge through the ICTU and the other unions involved, such as SIPTU and IMPACT, but we have the time to engage in such a process. Section 7 is concerned with employee shareholding schemes. Section 8 provides for an exemption from section 60 of the Companies Act, 1963.
Section 9 is an enabling provision to provide that Aer Lingus may establish a superannuation scheme for employees and former employees of Aer Lingus. Naturally that is an important issue. Last autumn because of a huge amount of correspondence, telephone calls and parliamentary questions, I engaged in a process whereby I met the trades unions. They voiced legitimate and worrying concerns regarding the pension schemes of Aer Lingus and Aer Rianta. I asked the chairmen of Aer Lingus and Aer Rianta to set up task forces to look into the companies' pension schemes and then report back to me. Last week I received that report. I have asked the two chairmen to meet me in the coming weeks to look at the arrangements they are putting in place to ensure whatever is required of a pension scheme in the State sector is adhered to. We have also sent the report for actuarial appraisal. In the months ahead I hope to come to grips with that. It is proper that it should be worked through. It is proper for the workers and those who worked there that a proper scheme be entered into.
I thank all who contacted me and made me aware that there were challenges and difficulties in the existing schemes. In particular, I look forward to meeting the chairmen of Aer Lingus and Aer Rianta to hear their views on how they intend to come to grips with this and ensure that the pension schemes are properly worked out in order that proper arrangements are made. That is only right and I have a duty to ensure that happens.
Section 10 is a standard provision regarding the expenses of the Minister for Finance and the Minister for Public Enterprise. Lest Members think that I will go off with a great deal of money from Aer Lingus, it has nothing to do with that but has to do with the expenses of running the IPO. Let the Senators all be clear on that.
Section 11 provides for the repayment to the Exchequer of a loan – I think it is £5 million – and outstanding interest by Aer Lingus. Section 12 provides for the disapplication of certain Acts to Aer Lingus. Section 13 gives the Short Title and commencement provisions.
When I came into the Department this time three years ago – in fact, it was five days from this date – one of the first files put in front of me was the Aer Lingus file. My predecessor, Deputy Dukes, had written in April 1997 to the chairman, Mr. Bernie Cahill, to ask his and the board's views on the future of Aer Lingus. Time moves on and Governments come and go, and three years later here we are dealing with the response of the same chairman – it seems only elected people change. The chairman responded by letter to me, then Aer Lingus set up a study and there was the appraisal of that study. I took a memorandum to Cabinet, and a second memorandum, and there were exploratory talks between the advisers. There is now the invitation to the trades unions to come to real talks and I hope this will be taken up. I hope the issues of the pension scheme and the ESOP will be determined soon.
I hope, having heard the views of this House and the Dáil, that we can arrive at a decent Bill containing whatever amendments may be felt necessary, and I am open to that. I commend the Bill to the House and look forward to hearing the views of the Members of the Seanad on this Bill.