Vol. 444 No. 2
6 Proinsias De Rossa asked the Minister for Transport, Energy and Communications in regard to his comments quoted in the Irish Independent of 30 May 1994, the reason he favours the disposal by Aer Lingus of the Copthorne Hotel chain, particularly in view of the profitability of the hotels and the contribution they can make to the Aer Lingus group; and if he will make a statement on the matter.
The sale by Aer Lingus of any of its subsidiaries is primarily a commercial matter for the company. One of the essential elements in the Strategy for the Future, which is designed to restore Aer Lingus to commercial viability, is the judicious disposal of a number of assets which are not essential to the core air transport business. By disposing of these assets the Aer Lingus group can strengthen its currently weak balance sheet and management can concentrate its energies and attention on the core air transport business.
I understand that the Aer Lingus board has received some offers for the hotel chain. I am unaware of the details of these as it is primarily a matter for the board. In my comments to the Irish Independent on 30 May 1994, I simply stated that I would favour as early a disposal as possible of the Copthorne chain as the sale proceeds would go towards reducing the borrowings of Aer Lingus. Obviously, the sooner Aer Lingus can reduce its borrowings the better.
Has the Minister set a deadline by which the Copthorne group is to be sold? Can he explain to the House the logic of selling a subsidiary of Aer Lingus which is actually making a profit?
Under the Cahill plan the latest time for the sale of the Copthorne group is 1994-95. The reason it has to be sold is that it is not essential to the core business of the airline. The airline group is heavily geared and has borrowings way in excess of what is prudent in terms of its future viability and investment prospects. Given the seriousness of the position, it is a matter of prioritising what is necessary to the company's future. Ownership of a hotel group is not central to the future strategy of Aer Lingus.
On what is a black day for the Aer Lingus group, and a particularly black day for the Minister, is he aware of the very heavy capital investment by the Aer Lingus group in the Copthorne hotels? Will he assure the House that, in the acceptance of any offer, the taxpayer will recoup his investment, that there will be no question of a garage or discount sale of these hotels which would mean a substantial write-off of taxpayers' investments whereby we would reap less than had been invested?
The sale of the hotel group will be based on the market price available; it will not be a garage sale in any sense. The value of the hotels is based on their current market value. The value on the balance sheet is a matter for discussion with the auditors and so on, if there are to be any write-offs on the basis of a sale. The financial crisis in Aer Lingus requires a cash-driven solution. Any prudent analysis of the position would require the sale of non-core assets not central to the strategy of the airline. Assets are acquired in good times and, in bad times, one has those assets to dispose of, to reduce gearing, borrowings and interest repayments and to achieve viability more speedily. If the central purpose of the strategy for the future of Aer Lingus is to achieve viability, one reduces borrowings as quickly as possible and disposes of assets not central to strategy.
Would the Minister accept that any profit-making sector of the Aer Lingus group ought to be valued as an enhancing factor in the overall group and that he is cutting off his nose to spite his face by selling it off, particularly since so much taxpayers' money was invested in it initially? Does he consider there is a painful lesson to be learned from the separation of the aircraft maintenance component of the Aer Lingus group into TEAM Aer Lingus when, at one time, the Aer Lingus aircraft flying and maintenance sectors were very much in harmony given the seasonal nature of both sides of the business? Would he agree that this should be taken into account rather than perceiving it purely as a way of fragmenting the company?
The question relates to the sale of a hotel chain. There is no point in looking at each individual part of the group in isolation to see whether it is making a profit. The one set of accounts applies to the whole group. No taxpayers' money went into the purchase of the Copthorne hotel chain.
State guarantees were given on loans.
No taxpayers' money went into the purchase of the hotel group.
The £75 million being put in is taxpayers' money.
If the Deputy has a question I will answer it.
It is taxpayers' money.
Let us hear the Minister.
When the Copthorne hotel group was purchased there was no question of the Minister for Transport, Energy and Communications or any of his predecessors providing money. The sale of the hotel group is required because of the heavy burden of debt on the overall company. It is judicious to dispose of that asset, in terms of acquiring capital in a lump sum which will go towards the reduction of the debt. That is necessary in order to achieve viability. In better days one could say we will hold on to a hotel chain or other business making money. In this case we have a problem so it is necessary to dispose of those assets that are not relevant to the resolution of the problem, one of which is the hotel group.
Will the Minister accept, because of the seasonality of the core business of Aer Lingus, that it is prudent to have activities such as the hotel group which are making a profit and can contribute to the overall financial position, and that it is imprudent to sell off those profit-making subsidiaries?
The Deputy put that question earlier.
Yes, but I did not get an answer. Does the Minister consider that the Cahill plan is falling apart, having regard to what is happening today in TEAM and the other difficulties?
Deputy, hear me. We are dealing with the Aer Lingus hotel chain only. I will not permit any deviation from that matter.
If the analysis of Aer Lingus was that this was simply a cyclical problem——
It is a cyclical problem.
——and that in future years they would have profits which would be sufficient to overcome those losses, one would say hold on to the hotel group. The fact is there has not been a cyclical change, there has been a structural change in the whole aviation business worldwide. Pre-liberalisation it was possible for profits from a hotel group to help the airline in the bad days but the fact is that both these businesses are cyclical. The hotel group was not making the profit suggested by the Deputy precisely because the airline group was not carrying the numbers and getting the business. That the hotel group was doing well when the airline was going badly is not true. Both were doing badly. One was doing a little better than the other, making small profits but not profits that would justify retention given the overall size of the financial problem. It is not true to say we have the luxury of holding on to the hotel chain and waiting for the good times when it will make a contribution. The burden of debt on the main airline company has to be reduced. As part of the solution, and part of the Cahill plan accepted by all parties, there has to be cost restructuring and judicious disposal of assets, one of which is the Copthorne hotel group. The financial problems of Aer Lingus will not be resolved without the sale of that hotel group. That being my main priority, I have called for the sale of the Copthorne hotel group as soon as possible with a view to getting the best market terms available.
