I propose to take Questions Nos. 12, 46, 49 and 93 together.
On 21 February last I informed the House of my serious concern about TEAM where, despite implementation of the Labour Court recommendations, the targets under the restructuring programme were not being met. If the situation had been allowed to continue unchecked, the company would have had no future.
In a more immediate sense, I was concerned, in particular, about the impact the situation in TEAM might have on the European Commission's decision in relation to the critical third tranche of £50 million in equity which is due for payment to Aer Lingus later this year.
The commission sought a report from the Government by 30 June next on the progress of the restructuring programme at TEAM and on proposals for resolving the current difficulties in the longer term. In the light of my analysis, I had requested the executive chairman of Aer Lingus to furnish me with a five-year business plan for Team Aer Lingus which would provide a basis for returning the company to commercial viability, in the context of current market conditions.
Subsequently, I received a letter from the European Transport Commissioner, Neil Kinnock, in which he indicated that he shared my concern and that the continuing losses at TEAM Aer Lingus were particularly worrying. He cautioned that if decisive action was not taken very quickly the Commission might find it difficult to take a positive decision on the final equity tranche.
The executive chairman of Aer Lingus has recently complied with my request for a five-year business plan. This plan was prepared in collaboration with expert business and aerospace industry consultants. I have had a thorough assessment of that plan carried out, which has involved both my Department and the Department of Finance. This assessment concludes that the measures proposed have been formulated in a manner which takes account of the market realities, where overcapacity and resultant low rates are expected to continue into the foreseeable future.
It is important to point out that in the absence of an agreed corrective plan projected TEAM losses would amount to more than £9 million in 1995, £11 million in 1996 and £13 million in 1997. In other words, over the next five years losses would amount to an unsustainable £60 million without a corrective strategy. It must also be remembered that Aer Lingus has already injected approximately £100 million into TEAM. The plan provides a means of returning TEAM to profitability on a phased basis. It does so by achieving further reductions in the cost base; mounting an aggressive, carefully co-ordinated marketing and product development programme; and restructuring TEAM's finances.
Specifically, the TEAM plan provides for a cost reduction programme, yielding at least a permanent £8 million annually, affecting all areas of the business including: payroll, overheads and materials.
The plan calls for a reduction in the workforce to approximately 1,500. This reduction in staffing, amounting to approximately 200, will be effected at all levels from management to shop floor. The plan also provides for financial stability for TEAM during the early stages of the plan when TEAM's earnings are not sufficient to meet its costs. This will be done by way of interest-free loans to TEAM from the Aer Lingus Group, which will be conditional on TEAM achieving the targets set out in the plan.
The implementation of the plan will require major adjustment and extraordinary effort. It must be clearly understood, however, that this is an integrated strategy which must be implemented to protect the future of TEAM and the entire Aer Lingus Group generally.
The plan provides for achieving profitability on a phased basis within this timeframe. I stress that this is a business plan, not a cost reduction plan. In short, it offers a future to the workforce of TEAM, provided all the measures are implemented in a committed manner. I have, accordingly, asked the executive chairman to proceed immediately with implementation of the plan.
As I have said on a number of occasions in the past, it is not appropriate to publish the details of the plan, as it contains commercially sensitive information. Given the gravity of the situation in TEAM and its potential impact on the Aer Lingus Group, it is vital that implementation moves ahead with all speed. As I speak, the company has already commenced the process of communicating with staff.
In summary, on taking up office I identified a serious problem in TEAM Aer Lingus and took decisive action. On my initiative, for the first time a total business plan has been developed for TEAM Aer Lingus. The plan demands technical excellence at competitive prices, which will require state of the art work practices. It contains aggressive targets and is realistic in that it takes account of continuing market difficulties.
On the basis of the best advice available to me, this plan can be achieved. It is therefore the first plan that realistically offers TEAM the prospect of viability and thereby offers a future for, and saves the jobs of, 1,500 people.
The only chance for TEAM's future is the full implementation of the plan and it is only on that basis that the Government can make a positive report to the European Commission in June.