JOINT COMMITTEE ON TRANSPORT debate - Wednesday, 6 Oct 2004

Aer Lingus: Presentation.

Chairman

I welcome Mr. Willie Walsh, chief executive officer of Aer Lingus, and Mr. Brian Dunne, chief financial officer. I draw their attention to the fact that while members of the committee have absolute privilege, this same privilege does not extend to witnesses appearing before it. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

Mr. Walsh wishes to make some opening remarks. For his information and that of members of the committee, we have a number of observers from various groups in the Visitors Gallery.

Mr. Willie Walsh

I wish to make a presentation to the committee which will take approximately ten minutes. I will move through it quickly.

Deputy Healy

Can members have a copy of the submission?

Chairman

It is being circulated.

Mr. Walsh

The airline industry is returning to crisis. In the United States of America the industry is in turmoil. United Airlines, one of the world's largest carriers, is struggling to maintain control of its restructuring while under chapter 11 protection. Despite being one of the most profitable airlines in the USA in recent years, Delta appears to be almost completely focused on seeking chapter 11 protection having sustained net losses of $2.4 billion in the first six months of this year. US Airways, an airline mentioned by some of the Deputies present as it flies into Ireland, has refiled for such protection for the second time in 18 months. According to it, while the restructuring which took place under chapter 11 protection in 2002 and 2003 helped it to reduce operating costs by nearly $2 billion, the dramatic growth of low-cost carriers, unabated fuel price increases and the public's demand for lower, simpler fares require that it does more to achieve an even more competitive cost structure. It is clear that despite restructuring under chapter 11 protection, the airline has been unable to compete with Southwest Airlines.

There is fierce competition in the European market which has seen substantial capacity growth through low-cost carriers. One airline analyst has described the industry as brutally competitive. The short haul model of European flag carriers is broken and the companies concerned are inherently loss-making. A price war is anticipated which my good colleague in Ryanair, Michael O'Leary, expects to be a bloodbath. Ryanair and Aer Lingus are among only a handful of airlines which make a profit on short haul operations in Europe.

Fuel prices are rising which is adding to the strain. Crude oil prices are at an all-time high. Today they touched nearly $52 a barrel. Despite constant supply assurances from OPEC, the market appears to react only to bad news. The fact that little damage has been done to world economies so far suggests real potential for prices to remain high. Refining margins for jet fuel have more than doubled in the past two years. Given these high fuel prices, casualties in the industry are inevitable. I have provided for the committee a graph of jet fuel prices from April 2003 to the end of September 2004 from which members will see that prices have more than doubled since September 2003 to over $500 per tonne.

I remind the committee that in the immediate aftermath of the tragic events of 11 September 2001 it was clear that if Aer Lingus took no action, operating losses were likely to exceed €90 million. Losses in 2002 would have exceeded €150 million. At the time Aer Lingus had no credit facilities available to it and was burning cash at a rate of approximately €2.5 million per day. We also had a shareholder who was unable to provide financial assistance to the airline because of restrictions on State aid. We faced an immediate cash crisis and were likely to deplete all our cash resources by the end of January or early February. Immediate action was therefore necessary while we developed our survival plan. By taking action quickly, we helped to reduce the losses in the year from the forecast €90 million to €52 million and ended the year in a net cash position. It is to the great credit of everybody in Aer Lingus that this was achieved.

The reality at that stage was that we were facing closure. Aer Lingus was associated with failure and identified by all media sources as a likely casualty along with Swissair and Sabena. Our transatlantic market was in chaos and it, at the time, represented approximately 40% of our revenues and traditionally contributed more than 50% of our profitability. Our load factors had fallen to less than 40% after 11 September 2001 and it was clear our cost base and work practices were unsustainable. The action required had to be urgent, radical and, more significantly given this was not the first time we had faced into a major downturn, the change had to be permanent. Since then, it is fair to say we have delivered a more sustainable business which is profitable and has a much stronger financial position. We are more efficient, have lower costs and are using technology in a much better way. We have introduced and delivered on our commitment to low fares and transparent pricing particularly through the Internet. Aer Lingus customers have saved more than €560 million since 2001 as a result of lower prices.

We are moving to a modern short haul fleet and have introduced or announced 39 new routes connecting Ireland with continental Europe and providing much better direct access to Ireland. That has had significant benefits for tourism and business. We now provide a real choice for consumers. Our worldwide sales on the Internet have increased from a low of 2% in November 2001 to more than 62%. Some 75% plus of sales in Ireland are made through the website with more than 200,000 visitors a day generating revenue in excess of €2.5 million. Our website was revamped at the end of September and we have put in place a continuous improvement and strategic plan to achieve 85% of all sales by 2006. The introduction of self-service check-in, FastPass, which is designed to simplify our frontline product and enhance our customer service, has received excellent customer feedback. The next stage of the development will allow our customers to check-in on the Internet and print off their boarding passes before arriving at the airport. Approximately 45% of all our passengers at Dublin Airport are now using self-service check-in.

Despite all of this and the fact that we reduced our cost base at the end of 2003 by more than 30% or, €344 million, it is clear that our cost base is still too high and our efficiencies are too low. Significant further unit cost reduction is required. Our average fare in Europe at €83 in 2003 was significantly higher than that of our competitors. Competition particularly in Europe and from new European low cost operators is intensifying. It is important to point out that there are now more than 90 airlines serving Ireland. Ireland is not served by Aer Lingus and Ryanair alone. Urgent action is needed to address this situation.

By way of background, it is important to point out that the revenue generated by Aer Lingus comes from three sources — the Ireland-UK market represents approximately 31% of our revenue with the European and transatlantic markets representing 32% and 37% respectively. We face much competition in each of these markets. There is intense competition in the UK from Ryanair, British Midlands, bmibaby, My Travel Lite, Cityjet, British Airways and, more recently, the entry into the Irish market of EasyJet. From Europe we have competition on practically every route we serve. I will later list a number of the airlines which compete directly with us in Europe. In the United States we have direct competition from Delta Air Lines, Continental Airlines and US Airways and indirect competition from many other carriers. A number of the carriers listed on the chart are effectively bankrupt with less than five of those listed being profitable, Aer Lingus being one of them.

Some 63% of our total revenue comes from short haul operations. This is the area of most competition within Europe. The new business plan approved by the board on 26 July covers the end of the current year, 2004, through to end 2007. It is a growth plan that will deliver significant increases in passenger numbers. Our commitment to low fares will see our average fares continue to reduce year on year over the period of the plan. As a result, our revenues will decline in 2005 and 2006 before returning in 2007 to the levels achieved in 2003 on the back of fleet expansion. To support and sustain low fares for customers, significant reductions in unit costs are vital.

Aer Lingus has now successfully repositioned itself as a low fares carrier. In August 2003, more than a year ago, the Aer Lingus mission, vision and values were revised to reflect this new direction in the business. These values were communicated internally and externally through the highly successful advertising campaign which features the aerlingus.com “Low fares Way Better” logo. Our mission is to provide safe, efficient and profitable low fare air travel to our customers. Our vision is to be recognised by our customers and the industry as one of Europe’s leading low fares airlines. Our focus to date has centred largely on short haul operations but our vision has now been reinforced to include our transatlantic operations and potential new long haul destinations. Our vision is to be recognised by our customers and the industry as one of Europe’s leading low fares airlines and a pioneering, profitable long haul low fares airline.

Much has been said about the positioning of Aer Lingus. I hope to clarify for the committee exactly where it stands today. The left-hand side of the chart illustrates the old, traditional full frills model. The type of words associated with this type of carrier is impressive, sophisticated, flexible but expensive. In other words, pricey but smart. On the right-hand side it illustrates the no frills low cost model: cranky, basic, unapologetic, tolerable, cheap and nasty. The positioning of Aer Lingus as a friendly, practical, fair and relevant airline to its customers is cheap and cheerful.

Aer Lingus fare structures have been significantly revised as part of its business plan. These changes were implemented on 27 September. All restrictions on its fares to all routes have been removed. One can access the cheapest fares on a one way basis. This is seen as a pioneering move on the transatlantic route. Aer Lingus is the only carrier providing that type of fare structure. US media coverage has been extremely positive and they have been asking when the industry will follow our direction. Our transatlantic premier prices have been reduced by more than 40% and aerlingus.com has been redesigned to reflect this new structure.

Aer Lingus plans to continue its strategy of route expansion to cater for market requirements by increasing the range of destinations it serves. During the lifetime of the plan, we will introduce more direct services from Ireland to a mix of destinations. In 2007, we will add aircraft to the fleet. The plan envisages radical growth in continental European traffic. It, however, assumes no growth in transatlantic passengers due to the outdated constraints of the Ireland-US bilateral agreement. It is significant to point out that Aer Lingus will serve more continental destinations from Cork in 2005 than it served from Dublin in 2001.

Another issue being addressed is the short haul fleet. Aer Lingus has taken delivery of six aircraft with the seventh being due for delivery in October and the programme will be complete this time next year. We are currently evaluating our long haul fleet. We have received proposals from the aircraft manufacturers and discussions are ongoing. We are preparing a planning application for the development of the Aer Lingus head office site.

There can be no return to the old business model in Aer Lingus. That business model was bankrupt and is no longer relevant. Going forward we need less complexity and greater focus on Internet sales, the use of technology with e-ticketing, FastPass self-service, a common A320 fleet providing a significant unit cost advantage, less business class and simple pricing structures, clearly indicating that more change is required. More cost reduction is essential and it needs to be across all our cost areas. Aer Lingus is committed to low fares and to developing more new routes. Profit is essential to ensure the future viability of Aer Lingus.

I would now like to address some rumours circulating in the media. The airline is not changing its name. Aer Lingus is associated with success. There is no question of the shamrock being dropped. Aerlingus.com is our primary sales channel and will continue to be promoted as such, but it is not the brand — the shamrock is the brand. Passenger interline will continue but will be restricted to our One World partners and other key airlines. Our head office will remain in Dublin. While consideration is being given to changing our uniform, no decision has yet been taken.

The business plan we have developed which has been approved by the board will continue and consolidate the process of change started in October 2001. Its implementation will deliver year-round low fares for our customers, significant expansion of our European network, radical growth in passenger numbers, a modern single European fleet offering reduced unit costs, improved productivity, further reductions in our distribution costs, and a 13% operating margin, less than the target we had set for ourselves in June 2002 of 15% at an operating level. It will clearly deliver on our commitment to provide our customers with lower fares.

Chairman

Will Aer Lingus be in a position to replace the fleet from its own resources? The profits generated are the cost savings on the labour force members who were made redundant. Last year they worked out at the average wage for a worker multiplied by the number who had been made redundant. What will the proposed 1,300 redundancies cost?

Mr. Walsh

I will ask Mr. Brian Dunne to address the fleet issue and the cost of redundancies. On the profits last year, the savings in payroll costs amounted to €67 million while profitability was €83 million at an operating level. The savings in payroll represent less than 20% of the total savings achieved to date — €344 million. The savings we have made in distribution amount to €76 million to the end of 2003, the single largest contributor to the cost reduction programme that has taken place.

Mr. Brian Dunne

A deal for the replacement of the short haul fleet was structured last year in order that it could be completed within internal resources. The deal which will be concluded towards the end of next year will see us with a common A320 fleet for short haul routes. Any expansion beyond this or in long haul routes has not been factored into our plan. That would require access to additional funding. We have been in discussions with Airbus and Boeing and the cost is generally $100 million per aircraft. Replacing a long haul fleet with nine or ten units requires a significant level of capital expenditure.

Chairman

Is it not possible with the profits generated on long haul routes to replace the aircraft or is Aer Lingus using its long haul route profits to supplement short haul route profits?

Mr. Dunne

Profitability is consistent across the board between long and short haul routes. We have made broad estimates of the cost of a redundancy programme at €90 million.

Deputy Naughten

I welcome Mr. Walsh and Mr. Dunne. We all accept that players in the aviation sector must be competitive. It is important, however, that we do not look at short-term solutions that will impact on both the consumer and the economy in the long term. We must have access to and from the country.

Connectivity is a major commercial advantage enjoyed by Aer Lingus over some of the other operators, particularly Ryanair. With the reduction in service, Aer Lingus may be forced out of the One World alliance. Is there potential for two point-to-point airlines in this country? That seems to be the direction in which Aer Lingus is moving. What impact would that have on consumers and the broader economy?

The company is now planning to drop cargo from most of its European operations. This would affect multinational companies and exporters and may be a barrier to future foreign direct investment. Will Aer Lingus retain its container baggage and freight system? If so, where will the savings be made? There will not be the same savings in turn-around time if container baggage is still being carried.

For Aer Lingus to develop its long haul services, leaving aside the EU-US agreement, it needs additional investment. The avenue being investigated is the involvement of a private investor. When a private investor comes in, it will have to raise significant resources to buy into the company. Will those resources then be available for the development of long haul services?

Have discussions taken place with Enterprise Ireland or the IDA about sourcing in this State some of the jobs now going to Britain?

Deputy Shortall

Does Mr. Walsh now accept that there is a considerable conflict between his corporate ambitions in Aer Lingus and the wider political requirements of aviation policy? As Members of the Dáil, we are representatives of the taxpayer and, therefore, the shareholder. As chief executive of the company owned by the taxpayer, Mr. Walsh has a clear responsibility to serve the wider interests of the public rather than the narrower commercial corporate interests he is pursuing. In the real world politicians have to take responsibility for human issues and the typical issue raised is the changed policy on the return of human remains to Ireland. As politicians, we have a responsibility to ensure citizens who are fatally ill or injured while travelling abroad can be brought home to be buried. I make no apology for being concerned about this issue.

I would expect that Mr. Walsh, as chief executive of the national airline, owned by the taxpayer, would be cognisant of the wider needs of aviation services but he seems to have completely ignored them and gone off on a solely commercial tack. I accept there is a difficulty for him, given that the Minister for Transport has been silent on aviation policy and that the outgoing Minister left it up to Aer Lingus to devise policy when that should have been the responsibility of Government. We should have a clear policy about what we want to do with the industry and the role Aer Lingus will have as the national carrier.

I wish to ask three specific questions. In respect of the premise of what Mr. Walsh is proposing to do with the company, it seems Ryanair is being used as the benchmark. It seems Mr. Walsh is assuming there is room in the market for two low cost, no-frills airlines. What is his basis for this assumption? The profits generated by the company in the past few years show that reduced fares and a reasonable level of service are a commodity that is in demand and the returns to the company are there to prove it. When fares are reduced to a reasonable level — not to Ryanair levels, but to a reasonable level — and a reasonable level of service is maintained, the Irish public like it and Aer Lingus is doing very well as a result. What is the basis, what research exists, for suggesting that the Irish public want a lower level of service? Ryanair has cornered a certain market which is no-frills, used by young travellers by and large and offering absolutely no extras.

There is another market which wants reasonable fares but also a reasonable level of service. There is a considerable market among the Irish public that regards the type of operation run by Ryanair, and particularly the conditions of work of its workers, to be quite objectionable. I suggest that the Irish public is looking for a choice. They are looking to retain the kind of choice they have at present, between the Ryanair type of operation and what is now the Aer Lingus operation. In my view, that is a reasonable choice to offer people. Why is Mr. Walsh suggesting that choice should be removed, leaving a choice between Ryanair one and Ryanair two? That seems to be the benchmark towards which Mr. Walsh is aiming.

Mr. Walsh has denied that what was billed as an MBO, management buy-out, is such. He has stated he did not seek permission to develop an MBO but rather permission from the Government to develop an investment plan. I will take Mr. Walsh's word for that. What are the underlying assumptions of that investment plan? He referred at the last meeting to the fact that Aer Lingus was financing the short-haul fleet out of its own resources. He said he saw a potential for developing business on the transatlantic routes but that Aer Lingus did not have the resources to buy the new aircraft that would be required for the long-haul fleet. There is no basis at the moment for suggesting that this potential transatlantic business exists. The bilateral negotiations are currently stalled so the business plan cannot be based on potential new business on the transatlantic route. If Mr. Walsh is basing growth on developing European and short-haul business, why is there a need for future capital investment and why is there then a need to bring in private capital? Will Mr. Walsh square that circle for the committee? The rationale for private investment in the company is not there, as far as I can see.

I wish to ask Mr. Walsh about his proposals for outsourcing. What savings will be made for the company through the outsourcing of various services? What options have been offered to staff who do not wish to take the redundancy package and who wish to stay with the company? Have the options been clarified for the staff? Why has Mr. Walsh not sought greater flexibility and increased productivity from staff, rather than immediately offering the redundancy option and outsourcing? I ask those questions as a representative of the north side of Dublin who is very concerned about the potential loss of 1,300 good jobs. If that happened anywhere else in the country, it would cause an outcry and the immediate setting up of a task force to deal with the problem. Why can those 1,300 jobs not be maintained? Why can the management not ask for greater flexibility and productivity? Why does Mr. Walsh seek to make yellow pack jobs, something to which as a representative of the north side of Dublin I object?

Mr. Walsh

I will take Deputy Naughten's questions first. Our position within One World is under review by Aer Lingus, not by One World. The One World carriers are very keen to see Aer Lingus remain within it. They regard Aer Lingus as one of the few successful airlines in the world today. They believe we are unique in terms of operating a profitable short-haul model when most traditional airlines are inherently unprofitable in those operations. We are reviewing the position to make sure it is the correct policy for Aer Lingus to remain in One World. No decision has been taken.

We will be meeting the other One World chief executive officers in November when I am hosting the meeting in Dublin. At this stage I am confident Aer Lingus will maintain its membership in One World but there is absolutely no question whatsoever of One World asking Aer Lingus to leave — in fact, quite the opposite. The One World organisation and the other One World carriers want Aer Lingus to remain a member of the alliance. They recognise the benefit that Aer Lingus brings to that alliance. It is appropriate that we stand back and question whether it is the right thing for Aer Lingus to do. That is how we deal with all aspects of our business. That issue is under consideration at the moment but I am confident it will be resolved to our satisfaction. We are not becoming a point to point carrier in the way Ryanair is a point to point carrier.

I stated in my presentation to the committee that we will continue to maintain passenger interline services, particularly with our One World partners and with selected other airlines, where it makes sense to Aer Lingus, and we are in negotiations with a number of airlines. Aer Lingus will maintain a passenger interline system in the future and we regard it as being relevant to our business model.

There are a number of options if Aer Lingus is seeking private investors. However, any private investor will have to pay a substantial dividend to the State to obtain access to partial or full ownership of the company. That will lead to a significant debt, as it did following the purchase of Eircom. Where is the capacity for that investor to provide further capital for the business? The history of such buy-outs shows that the person or company responsible for the buy-out tries to sweat the assets and make a short-term profit rather than being in it for the long haul.

Mr. Dunne

Mr. Walsh

I acknowledge this. There are two shareholders, ESOP and the Government, with the Government as the majority shareholder. Given the performance of Aer Lingus and its current financial strength, it is possible for the current shareholders to invest in Aer Lingus. We have a business that is profitable and has a viable business plan. On the basis of this, investment is possible.

Deputy Shortall used the words "in the real world". Mr. Dunne and I live in the real world of aviation, as does everyone in Aer Lingus. It is a brutally competitive industry.

I stand over everything we have done. Our track record points to a company that has made a lot of right decisions. I do not suggest that we have made all of the right decisions. Where a wrong decision has been made, I have no difficulty in reversing it. That is the right thing to do. If we have done things that are not in the best interests of Aer Lingus, I have no difficulty in reversing those. In fact, we have done so. We constantly review everything we do to ensure we are going in the right direction, and I am satisfied that the direction Aer Lingus is heading is the right way to go. Clearly it is a profitable company. We are one of the few profitable airlines in the world. We do not get sufficient recognition for this. We have made a lot of right decisions.

Deputy Shortall yet again used the term "MBO". I understand the Taoiseach made reference to it in the Dáil today. As I stated the last time I was before the committee, we did not seek permission to develop an MBO. We sought the consent of the Government to prepare an investment proposal for Aer Lingus. Nothing was done with regard to that. However, on Monday of this week I met the Secretary General of the Department of Transport, Ms Julie O'Neill, and I advised her that the management team had no interest in pursuing that issue. Our request for consent was withdrawn on Monday of this week. The Department was advised of that on Monday. No work has been done with regard to that. As our consent has now been withdrawn, given that we had already given a commitment that no work would be done, we definitely will not be doing any work in relation to it. There is no MBO, nothing was developed in terms of an investment proposal of any format, our request for consent has been withdrawn and nothing will be done. That should finally address the issue. We can move on to focus on the critical issues that face Aer Lingus.

We look at Ryanair as the benchmark in terms of cost. It is the most cost-effective airline.

(Interruptions).

Mr. Walsh

No, absolutely not. It is the cost-effective airline in Europe. I will not say in the world, because it depends on the regions of the world in which one operates. We benchmark ourselves against Ryanair's cost structures. We look at it on an ongoing basis. We also benchmark our costs against easyJet, JetBlue and other traditional carriers. However, we recognise — and it is important to admit — that Ryanair has a much better cost structure than Aer Lingus. For us to compete in that market we must be as cost-effective as possible. As I pointed out in my presentation, there is no question of matching Ryanair in terms of service. Aer Lingus provides a better service than Ryanair, and I will argue that in front of anybody, as I have done consistently.

Deputy Shortall

That is the case at present.

Chairman

Deputy Shortall, allow Mr. Walsh to continue and address questions to him through the Chair.

Mr. Walsh

Ryanair is one of the fastest growing airlines in the world and a formidable competitor. It is a great credit to Aer Lingus and everybody working in the company that we can successfully compete with it. We are probably the only carrier which competes head to head with Ryanair profitably. To do so, we had to become much more efficient. In 2001, we could not compete efficiently and lost money when we did so directly. Today, we compete very well with Ryanair on a wide range of direct destinations. Clearly, we present a choice to the consumer.

According to our customers, the critical issue — Deputy Shortall will be pleased to learn we have done market research on it — is price. It is by far the most important factor when consumers, customers, passengers are considering travelling. While it is not the only factor, it is by far the most important. We are carrying record numbers of passengers so we must be doing something right and customers are voting with their feet by travelling with us.

It was dealt with three months after making the request.

Deputy Glennon

I welcome Mr. Walsh and Mr. Dunne. I am delighted the proposal, whatever its nature, has been removed from the agenda. I am sure it will come as a major relief to the staff and many of my constituents in Dublin North to learn this is the case.

I will address a couple of issues and follow on from a point raised by my colleague, Deputy Shortall, regarding the wider duty to the shareholder beyond the bottom line on the basis that the shareholder is not the Government but the Government acting on behalf of the people.

Controversy has arisen recently about the repatriation of remains. Will Mr. Walsh clarify the precise position on this matter? He used the word "interlining" which, I understand, relates to this issue. I am informed the service of repatriating human remains has been restored but will be available only via London Heathrow. This will mean that if someone dies in the vicinity of another destination served by Aer Lingus, the person's family will have to make arrangements to bring his or her remains to Heathrow Airport, rather than the company collecting them at the destination in question, for example, Malaga, Paris or Rome, on a direct Aer Lingus service. This policy will cause extreme hardship. I seek clarification in layman's language as to the precise state of play regarding the repatriation of remains to Ireland for burial, regardless of ongoing discussions or any other matters.

My second point relates to an issue I have raised privately with Mr. Walsh. He specifically stated there was no question of dropping the shamrock. "Aer Lingus dotcom is our primary sales channel and not a brand", he said. I find it difficult to equate that with today's presentation which contains 23 references to Aer Lingus dotcom and not one reference to shamrock. I know Members of the Oireachtas are regular users of Aer Lingus, which in itself is a source of some controversy. However, I do not know if this would be considered sales channel usage of aerlingus.com.

The following may seem a petty point, particularly as I come from Dublin North, but there is a huge emotional attachment on the north side of Dublin to Collinstown, as we always call it, and to everything that happens there. I am sure Deputies Sean Ryan, Carey and Haughey will agree. Aer Rianta, and Aer Lingus particularly, have been, and continue to be, a source of great pride to the people of north Dublin. They have meant a lot to the nation in its development and during the Celtic tiger years. While these issues have little material value on a balance sheet — to use the language of auditors — and although they may not be tangible, they are very real. I am sure Deputy Shortall would also agree with this.

This brings me on to the question of staff morale. I note that——

Chairman

Is there any hope the Deputy might ask direct questions because there are ten others who wish to contribute.

Deputy Glennon

Certainly, I will be brief. On the question of staff morale, Mr. Walsh presented us with the three options of cheap and cheerful, pricey and smart and Michael O'Leary. I believe we are all agreed cheap and cheerful is the way to go. When does Mr. Walsh expect the Aer Lingus staff, particularly the front-line staff, to be cheerful? We are heading towards the cheap stage but from my experience particularly in recent weeks, there is a considerable morale deficit. We heard the call centre was closed for three days in the past fortnight and that the planning permission application for the current administration centre at the airport has automatically given rise to the question of to where the centre is moving. Punctuality must be also considered. My information is that, at present, only 40% of all Aer Lingus flights are on time.

Mr. Walsh

No.

Deputy Glennon

Will Mr. Walsh comment on that specifically?

Deputy P. Power

I welcome Mr. Walsh and Mr. Dunne. There was a time when only Mr. O'Leary could assemble a press posse like that which we have assembled here today. It is true Aer Lingus is now competing with Ryanair on every level. I compliment the two representatives on that.

When we saw on our agenda that we were to have a discussion on the future strategic proposals for Aer Lingus, we had anticipated that during the presentation there would be a very clear statement on how the company intends to fund the future acquisition of aircraft. Mr. Walsh spoke in great detail about the company's ambitions to extend its routes and to acquire 27 or possibly 29 aircraft, but not one word was said about how these ambitions would be funded. We received a reply from Mr. Dunne only in response to Deputy Shortall's question. If one is to have a real strategic discussion about the future of Aer Lingus, the key question is one of funding. We, as the shareholder, like any company shareholder, must first ask from where the money will come. I would like a detailed response making reference to securitisation, leasebacks, bonds, direct borrowing and putting further proposals to Government. These are the sort of details we came to hear. Given Mr. Walsh's statement that the investment proposal to the Government has been withdrawn, which I welcome, it puts my question on funding into even sharper focus.

Mr. Walsh put great store on the adverse effect of recent increases in aviation fuel prices. What percentage of the company's overall costs pertain to fuel?

In light of Deputy Glennon's question, what does Mr. Walsh consider to be the future strategic role of Aer Lingus in the country? Many people throughout the country, especially from north Dublin, have a considerable emotional attachment to the airline, as Deputy Glennon put it. Others regard it as a vital and strategic national resource. Aer Lingus management could be easily interpreted as having a completely different perspective on the position of the company in years to come. For example, if there were detailed funding proposals that would require outside finance, which of the following would be of greater importance to management: the retention of Aer Lingus as a strategic resource, including its routes and slots into London, which we regard as being of vital strategic importance; or the need for outside equity investment to finance the existing plans of the company?

Aer Lingus does not make these arrangements. They clearly would have to be put in place with the funeral director. As I said, we will continue to work with the Irish Association of Funeral Directors, which understands the issue we face. There are certain difficulties and procedures to be followed. The association has worked closely with us and highlighted a number of issues for us that had not arisen when we made our original decision. That is evidence of a decision taken by us which we were quite happy to reverse. Where possible, we will continue to provide services in such circumstances.

With regard to advertising, in every presentation I make I take the opportunity to put forward the "aerlingus.com, low fares, way better" slogan. It is always great to talk about it. I hope the media will also report on it because it is free advertising for us. It is tactical advertising on our part and we use it everywhere because it has been the single biggest contributor to cost savings in Aer Lingus and continues to be the most important issue for us. Let us be clear: it has revolutionised Aer Lingus. Some 62% of sales go through our website. This only happens because we keep pushing it and take every opportunity we get to highlight it.

The format of this presentation is exactly the same as that I use in all presentations I make, including to the board of Aer Lingus. It is an opportunity for us to highlight the website as a sales channel and we take every opportunity we get to advertise the fact that that is where people should go. I stress again that it is a sales channel which is critical to our future and has been hugely successful. Great credit is due to everybody in Aer Lingus who has worked on it because we are held up again as a shining example of what can be done as a traditional carrier. There are very few other traditional carriers which have been able to come anywhere close to what we have achieved.

Staff morale is——

Deputy Shortall

Where can the shamrock be seen?

Mr. Walsh

The shamrock is very——

Chairman

Deputy Shortall, there is no need for that. You know the procedure. We should allow Mr. Walsh to continue.

Deputy Shortall

To finish, Mr. Walsh said they were still using the shamrock and I just wondered where.

Mr. Walsh

Clearly, the most visible evidence of the shamrock and probably the most important demonstration is on our aircraft. It is the bit people associate with Aer Lingus. It is the feeling, particularly when people are abroad, that they associate it with being at home. It will continue to be carried on all of our aircraft. It is probably the most evident example of the brand and appears in many other areas also. As the Deputy knows, it is to be found on our head office building and features on all Aer Lingus offices. It also features on a lot of Aer Lingus vehicles and remains on all of our stationery. If one looks at any of the official Aer Lingus stationery, it includes and will continue to include a shamrock.

Clearly, the issue of staff morale is a difficult one. It is natural that in going through a period of change, particularly the change we have gone through and are facing into, morale will be impacted upon. However, I take exception to what the Deputy said; I believe our staff do a great job and will defend them completely.

Deputy Glennon

I did not say they did not.

Mr. Walsh

When dealing with customers, our staff make every effort to be cheerful and friendly. We have a long tradition which holds to this day. I may have misunderstood the Deputy when he made his comment, but clearly the issue of morale will be important for us. The critical issue is certainty about the viable future of Aer Lingus which has been our focus since 2001.

There are many options for us.

Chairman

Mr. Walsh will have no problem in finding a location if he wants to move.

Mr. Walsh

We are in the process of restructuring the call centre. The calls we receive are a fraction of the number we used to receive. More than 75% of our sales in Ireland are now made through the Internet. As a result, the requirement to have call centres has significantly reduced. Our focus is on generating 85% of total sales through the Internet. This means that we want to push the figure of 75% of sales in Ireland to more than 90%.

It is possible for people wishing to travel with Aer Lingus to book flights through travel agents. That option is still available to everyone. Most travel agents sell Aer Lingus flights through our website, aerlingus.com. They are happy to do so and we are happy they provide such a service.

Deputy Glennon

Was there an unscheduled closing of the call centre in recent weeks?

Mr. Walsh

Not for the first time. It happens. It happened in the past and I have no doubt it will happen in the future.

Fuel accounts for approximately 14% of our cost base and the figure is rising. We are fortunate in that our hedging position is strong relative to others in the industry but we are exposed to the volatility of fuel prices. It is an area of significant concern as we head towards 2005 and 2006.

On my strategic view of Aer Lingus, the lesson I learned when I took over as CEO on 19 October 2001 was that for Aer Lingus to have any strategic value or future it had to be profitable. That was the clear mandate given to me. Shareholders said I would get no money from them. The banks also said I should not look to them for money; I was on my own. I have said on many occasions that great credit is due to everyone involved in Aer Lingus that the airline is still in business today, much to everyone's surprise. I do not think anyone gave us a hope of surviving in 2001. That experience has probably influenced my thinking. It was clear to me that if we did not maintain a clear commercial focus, address our financial structures and the issues of competitiveness and productivity, and focus on profitability and the generation of funds internally, we would be out of business. The issue of a strategic plan can only be discussed when one is in business. I am pleased to have an opportunity to talk about the issue today because in 2001 most felt we would not be here today to talk about it.

I make no apologies for the fact that I am driven by the commercial and financial requirements of the airline. That is the mandate I have been given and it must be the focus of management. It is only because we are in business that we can talk about other strategic issues such as access to Heathrow Airport. I believe issues such as slots at that airport have been over-stated. If one examines what Aer Lingus has done in recent years, our desire is to provide direct access to and from Ireland, rather than rely on feeding traffic to an airport such as Heathrow to allow passengers access the rest of Europe. It is significant that in 2005 we will serve more continental destinations direct from Cork Airport than we served from Dublin Airport in 2001. Our focus is on direct services which clearly is in the interests of customers. The significance of Heathrow Airport in providing wider access to the rest of the world is a lot less today than it was because of what we have done. Our focus will continue to be on direct services.

The Orlando service operates Dublin-Orlando-Shannon and is completely consistent with the Ireland-US bilateral agreement. I have a paper which I can distribute to members which sets out the relevant sections and highlights our compliance. It is possible for people to access the service from Shannon Airport by buying a ticket. We have moved to a pricing system completely free of restrictions whereby tickets for all our services can be bought on a one-way basis. People can access and connect with the service by buying a ticket from Shannon Airport to Dublin Airport and they will have a direct service from Orlando to Shannon Airport. This meets our obligations under the bilateral agreement and is consistent with what our competitors have done. I reject any suggestion that we are in breach of the agreement and will be happy to pass on the documentation on the issue.

Senator Morrissey

I welcome Mr. Walsh and Mr. Dunne. I want to put a few direct questions to Mr. Walsh. He stated in his presentation that in the past two or three years he had made a saving to his customers of €560 million. How much per customer has he saved as a result of his astute management of Aer Lingus since taking office on 18 August 2002?

Two years ago at a Progressive Democrats conference he made a brave statement. He said Aer Lingus had been ripping off its customers for a long time. Considering that he has again acknowledged today that the cost base is too high and efficiency too low, would he accept Aer Lingus is still ripping off its customers?

He stated in June or July that while the Government as shareholder could invest in Aer Lingus——

Deputy Eamon Ryan

That marks a change in the Senator's attitude.

Chairman

The Deputy should allow the Senator to put his question.

Senator Morrissey

——that investment could be, and more than likely would be, challenged by its competitors. He said this would not be in the best interests of Aer Lingus because if it was challenged, it would have to open up its books and the way its competitive model was structured would be examined by its competitors worldwide. Considering that its cost base is too high and efficiency too low, if the shareholder was to invest, would its competitors not say this was support for Aer Lingus by way of a subsidy as against an expansion plan for its survival? Given that Mr. Walsh has acknowledged its investment model was taken off the desk on Monday, has he slept better since? Given his opening remark that the industry is returning to a crisis, I do not know what private sector investor would put money into such a volatile industry. Is Mr. Walsh ready to take the gold watch which Deputy Healy said he would give him?

Deputy P. Power

One should take some golden handcuffs.

Senator Dooley

I join my colleagues in welcoming Mr. Walsh and Mr. Dunne who have set out how they view the current situation within the aviation sector. I also welcome the statement on the change of heart of the management team in regard to the investment proposal. This is welcome because it will remove the cloud in respect of a conflict of interest.

I am particularly concerned about the level of service to the mid-west region. As Mr. Walsh will be aware, the Government has a stated policy on balanced regional development. Perhaps Mr. Walsh could answer the questions against that backdrop, particularly with regard to the daily service between Shannon and Dublin.

Mr. Walsh will be aware that EUjet made several public statements during the summer regarding what it perceived as an understanding or agreement with Aer Lingus. I look forward to Mr. Walsh's response on this issue. The agreement which EUjet understood to exist would have allowed it to operate a daily return service. Currently, even leaving EUjet aside, Aer Lingus is only providing a service that leaves in the morning on a number of occasions and returns at 1.45 p.m. As a public service provider, Aer Lingus is not providing a service consistent with the Government policy of balanced regional development. It is not possible to return from Dublin to Shannon at any time after 1.45 p.m. Mr. Walsh might also address his decision to cease carrying cargo against a backdrop of balanced regional development.

Mr. Walsh has indicated in the document he has presented to the committee that the triangulation rule which is used by a number of the United States carriers on their scheduled services serves to overcome the issue whereby they land in Shannon one day and in Dublin another. Mr. Walsh seems to have tagged on the capacity for a passenger to purchase a ticket between Shannon and Dublin as fulfilling that. I understand this was not his original intention and I welcome his view on the issue. When this document was initially posted on the Aer Lingus website, there was no reference to that and it appears there is a rearguard action to try to comply with the regulations. This course of action is open to Mr. Walsh and is perfectly legal, but it is particularly disappointing that Aer Lingus should use the United States public charter rules rather than the Irish rules. Aer Lingus is an Irish State company which is owned by the taxpayer. It is disappointing that the company should try to weasel out of its responsibilities and take a softer option by its use of United States regulations.

I thank Aer Lingus for its reversal of the decision regarding the repatriation of bodies. This service, particularly for families in the west, has provided the dignity of a burial in Ireland to people who in many cases worked hard and lived the latter part of their lives in poverty in cities around England. The situation of such people has been brought to our attention by recent media reports. I hope Aer Lingus will adopt the same common sense approach in dealing with the delivery of the stated Government policy of balanced regional development to ensure that both business and customers in the western region can avail of the same level of service as that enjoyed by those on the east coast.

Deputy P. Breen

It is interesting that Mr. Walsh did not mention the word "Shannon" during his ten-minute presentation to the committee. This is an insult to the people of the mid-west. Mr. Walsh spoke about Aer Lingus becoming cheap and cheerful. The people of the mid-west are being treated in a cheap but not very cheerful manner.

Is there any intention to resume a proper Shannon to Dublin service? All the other regional airports have a service to Shannon and Dublin. The committee is aware of the complications during the summer regarding EUjet and Mr. Walsh might answer the questions on this issue. Aer Lingus is not providing a satisfactory service. It is not a day service which would allow one to go up in the morning and come back in the afternoon.

I should remind Mr. Walsh that none of the 39 new routes to continental Europe of which he spoke is out of Shannon Airport. When the Dublin to Orlando route commenced on 17 September, the Aer Lingus website did not mention the technical stop at Shannon Airport on the return journey. It is only in recent weeks that this has been corrected and the difficulties overcome. Was market research not done in this matter? There is a significant catchment area in the west for this type of service and its previous provision by the Russian carrier, Aeroflot, was extremely successful.

A Dublin-Shannon-Orlando service would be viable but Aer Lingus is completely ignoring the west in this new charter service. Did Aer Lingus obtain clearance for the service from the Department of Transport in advance of its preliminary announcement? If so, then the Department has ignored the Government's regional balance policy.

The Dublin-Orlando flight arrives into Shannon at 7 a.m. and into Dublin at 8.15 a.m. There is technically, therefore, a half hour period for passengers to disembark at Shannon. Can an Airbus A330 be turned around in 30 minutes or is it merely a technical stop? This is akin to one taking a charter flight from Dublin to Malaga in the morning and being unable to get a return service. This is what Aer Lingus is doing because the Shannon-Dublin leg of the flight is there merely because the flight is going to Dublin in any case as part of its transatlantic journey.

With regard to the Baltimore service which Aer Lingus recently proposed to axe, Mr. Walsh might give us statistics on the load factor for that flight and explain why it is being axed. On the last occasion Mr. Walsh spoke to the committee, he talked of opening ten new services into the United States mid-west, Dallas, San Francisco and other destinations. If Aer Lingus cannot make viable a service to Baltimore, how can it expect to operate services to these other cities, most of which are serviced by the major carriers? Aer Lingus is a minor airline in terms of transatlantic business.

An advertisement in one of yesterday's daily newspapers tells of Aer Lingus flights to Boston for €175, available from www.aerlingus.com. The small print specifies that all destinations are served out of Dublin. I remind Mr. Walsh that Aer Lingus also serves Shannon. Why is it not included in these advertisements? There is an evident bias against Shannon in the actions of Aer Lingus, which is felt by the people of the mid-west.

Chairman

Deputy Breen must put a question to Mr. Walsh.

Deputy P. Breen

I have heard media reports that the Aer Lingus manager in Shannon is due to retire. Does Aer Lingus intend to replace that manager and will he or she be accountable to management in Dublin?

Mr. Walsh

I thank Senator Morrissey for challenging Aer Lingus in its drive to become more productive. I admit that while significant progress has been made, there is always scope for further improvement. Aer Lingus represents excellent value for money for our customers and it is a significant improvement on the situation in the past. More than €560 million has been achieved in savings for customers, average fares have reduced by more than €30 per passenger since 2001 and there is scope to reduce them by that amount again into the future. While this may be defined as "fat", we always strive for greater efficiency. Much of that efficiency comes about through efforts such as introducing the common aircraft type with the single A320 fleet. This will give us significant unit cost advantages that were not there previously. It is not necessarily "fat"; that is an unfair description. We recognise that while we have made significant progress, there is more we can do.

I will not argue with the Chairman as he has the right to decide that.

Mr. Walsh

To move on to Deputy Breen's question, we will continue the Shannon-Dublin service that we offer, but we have no plans to increase or supplement the service. I refer here to Senator Dooley's question also. The Shannon-Dublin route does not fall under a PSO, although there are public service obligations on other destinations.

With regard to Orlando and the approval of the Department of Transport, I highlight the fact that the Department of Transport, aside from being the representative of the shareholder, is also the regulator in this matter. As the regulator, the requirement of the Department is to ensure that we comply with the regulations. With regard to Orlando, we comply with the regulation as stated in the bilateral agreement.

I anticipated that the Deputy would have questions about Shannon and I have a presentation on disk or I can distribute the ten or 11 copies I have to members. The presentation highlights answers to some questions the Deputy asked previously relating to load factors at Shannon. With the Chairman's permission, I will distribute these and go through the presentation quickly.

Deputy P. Breen

I am delighted that Mr. Walsh is thinking of me.

Senator Dooley

I asked about balanced regional development and wonder could Mr. Walsh address that particular point.

Mr. Walsh

I believe I addressed it the last time I was here. The obligation to provide balanced regional development is not on Aer Lingus. Its obligation is to operate in a commercial fashion. As I pointed out in response to previous questions, clarity on our requirements became evident at the time of our brush with bankruptcy in 2001.

To address the issue of Shannon, Deputy Breen asked for statistics, specifically on the matter of Shannon-JFK. The first chart in my presentation provides a month-by-month breakdown of the load factors on the route, with a very low figure of 39% in January 2001. In 2001, Aer Lingus lost money on the Shannon route in ten of the 12 months. We only made a profit in July and August and the average load factor over the year was 68%. On page 2, the text shows the route lost money in ten of the 12 months of 2001 and also lost money in 2000. It was the single biggest loss making route in 2001. By contrast, Dublin-JFK made a profit in ten of the 12 months of 2001. The average load factor at Shannon was 68% compared to an 83% load factor at Dublin. In 2000 the load factors were 68% and 85%, respectively. The average fare at Shannon was 26% lower than the average fare at Dublin. The losses at Shannon in 2001 exceeded the profits made on the Dublin route.

The committee will note that a chart in the presentation shows the load factors in 2002 on a month-by-month basis up to the end of October. Deputy Breen will be aware of the change, from a direct Shannon-JFK flight to a Dublin-Shannon-JFK flight in November that year. Turning to the next page, the committee will see that Aer Lingus lost money in five of the first six months of 2002. The route change was announced in July, to take effect from November. The average load factor achieved over the year — almost 81% — represented a significant improvement on the figure for the previous year. In 2002 the average fare from Shannon was almost 20% lower than the average fare from Dublin. The route was profitable in five of the last six months of the year and the profits generated in the latter part of the year, particularly as a result of the change in routing, offset the losses in the earlier part of the year. The Shannon-JFK route lost money in 2000, 2001 and the first five months of 2002. It was the biggest loss-making route during 2001. The load factors, particularly during the winter months, were completely unacceptable. The decision to originate and terminate the service in Dublin has been successful and returned the route to profitability.

Shannon Airport yields are significantly lower than those at Dublin Airport. That fact and a statement I have made on a number of occasions before this committee are now supported by data from the US Department of Transportation for US carriers operating between Dublin and Shannon. The last page includes a slide contained in a presentation made to me by Baltimore Airport. The statement at the top of the page is one in which it stated it believed a non-stop service to Dublin from Baltimore would ensure higher yields than the current service since Dublin provided a higher yield margin, and it provided non-stop yields for US-Ireland services on US flag carriers indexed to the lowest yield. The slide shows that the yield or average fare for US Airways was 29% lower from Shannon than from Dublin. For Continental Airlines operating from Newark, it was 24% lower from Shannon than from Dublin. For Delta operating from Atlanta, it was 16% lower from Shannon than from Dublin. This fully supports the statements made by Aer Lingus on profitability, the nature of fares and the market at Shannon Airport. The figures are supported by data from the US Department of Transportation provided for me by Baltimore Airport in a recent presentation in which it accepted that it would be difficult for Aer Lingus to make a profit on the route operating through Shannon Airport and that its assessment of the market was that the route could be profitable if a direct service was provided from Baltimore to Dublin.

The statistics for Baltimore show that the load factor on the Baltimore-Shannon route — this is consistent with our data — was 79.1%, the lowest load factor on any transatlantic route. By way of information, for the benefit of the Deputy, there was a load factor of 83.8% for US Airways on the Philadelphia-Shannon route. I think the Deputy asked me that question or made a statement in that regard on the last occasion I was here. Unfortunately, the Baltimore route was loss-making and the decision to suspend the service this winter was based on the losses incurred to date and projected if we continued to operate the service over the winter.

To address the question of why we believe we can make a profit on the significant number of new destinations that we would like to serve, the evidence is provided in this presentation. It is clear that profitable transatlantic routes can be operated, both from Shannon and Dublin, but in smaller markets — Baltimore would represent such a market — the only prospect of operating a profitable route would lie in a direct service from Dublin.

I am quoting the passenger figures from Shannon where we have seen growth and an increase in capacity. We have seen growth in passenger numbers in 2003 and 2004. We continued to see growth to the end of September. There was a 6% increase in passenger numbers through Shannon Airport on our transatlantic services in September alone.

I am pleased the Deputy raised the matter of US Airways, a bankrupt carrier in receipt of both direct and indirect aid from the US Government. It has an unfair advantage in competing with Aer Lingus. It has bankruptcy protection for the second time in 18 months. I would not hold it up as an example of anything. It is an example of how not to do business. The reason it flies into Shannon Airport is it can do so for free. It does not pay charges because of the scheme offered to encourage carriers with bankruptcy protection and in receipt of direct and indirect State aid. It is being helped, therefore, to compete with Aer Lingus. I am pleased to say we are successful in competing with such carriers because of the action we have taken to ensure we are profitable on transatlantic routes.

Deputy P. Breen

On the transport of human remains, is it only from Heathrow that Aer Lingus now intends to bring human remains home? If tragedies happen in America, for example, will people be able to bring home the remains with Aer Lingus?

Mr. Walsh

Yes, they will.

Deputy J. Higgins

Mr. Walsh has stated on a few occasions that he did not get a €9,000 watch. What is his annual remuneration and what is the annual remuneration of the director of finance and the director of operations?

Deputy P. Carey

This is a fairly brief question on which Mr. Walsh or Mr. Dunne may have touched earlier. Deputy Higgins adverted to it. What is the rationale of the company in outsourcing the telesales function? Bearing in mind that Ryanair has its own reservations system which has a 98% Internet booking level while that of Aer Lingus is approximately 50%——

Mr. Walsh

It is 62%.

Deputy P. Carey

——and that the telesales business is very mobile, my experience of other areas of commercial experience is that it goes down to the lowest common denominator, while the quality and level of service rapidly diminishes. In many cases services tend to be bundled together and one could easily find that the Aer Lingus business and the business of many others unrelated to aviation may well be handled by the same teleservicing company. I seek clarification on the thinking behind it because I am not convinced that what I think Mr. Walsh is trying to do will be to the good of the company and the workers.

Deputy S. Ryan

There are two fundamental issues here, the future ownership and the business plan. My preferred option in the context of the future ownership is that it would be retained, if at all possible, in public ownership. However, I am a politician and I will not get into the negotiations on that this afternoon. I hope the trade unions, management and the Labour Relations Commission can bring to a satisfactory resolution the issue of where Aer Lingus is going. As a Member for the Dublin North constituency and for the sake of the greater Dublin area, I want to see a successful future for Aer Lingus.

I compliment Mr. Walsh and his team, and the rest of the workers, on bringing the company to where it is, but in the context of where the company is going there are a few questions which must be addressed. I have been through a few such situations previously, for instance, the Cahill plan in 1991. I know what course negotiations can take and at where they can arrive. I hope any future negotiations will be successful.

Is Mr. Walsh stating that as matters stand, the future ownership is an issue for the Government? In that context, has he or the board of Aer Lingus been asked for his or its preferred option for the future by the Cabinet sub-committee or the Department? Rather than Mr. Walsh opting out in the context of bringing forward a business plan, would it have been more appropriate for management, in conjunction with the trade unions, to bring forward a plan to put before Government stating this is the way the company sees it? What is the board's position, as stated to the Government, on the preferred option for the future ownership of the company?

I hope the business plan can be dealt with at the Labour Relations Commission but I would have a number of concerns in this regard. What is Mr. Walsh's understanding of the term "voluntary"? I do not want him to give the definition from the dictionary. My interpretation of voluntary is that people could assess the situation in an open way and give an opinion on where they are going into the future. As a politician, I would be concerned if what I have heard is correct, that the staff in most of the areas were advised by management that they should strongly consider the package as there would be nowhere to go for them in the future. If that is the way these people who, with the rest of their colleagues and Mr. Walsh's team, have made a significant contribution to the viability of Aer Lingus by accepting cuts, etc., are being treated, that the gun is being put to their heads while at the same time they are being told this is being done on a voluntary basis, it is totally unacceptable and goes against everything for which I stand and for which I would hope Aer Lingus management stands. I look forward to Mr. Walsh's comments in that regard.

Mr. Walsh indicated earlier that if there was an alternative viable option to outsourcing available, it could be dealt with and hopefully it would be dealt with through the Labour Relations Commission. Could he confirm that such is the case?

How many people have indicated, I hope on a voluntary basis, an interest in availing of the redundancy offer? Since 2001 there have been perhaps 3,000 job losses in Aer Lingus. With the proposed additional 1,300 redundancies, where does Mr. Walsh think it will all end up in the context of the need for workers in Aer Lingus?

Mr. Walsh

I apologise if I gave Deputy Higgins the impression that I was being magnanimous. That was not intention. I also apologise to the committee if it came across that way. I have heard the issue of a race to the bottom being discussed. Aer Lingus is not in a race to the bottom. If one examines the business plan and the statistics associated with it, it is clear that even after implementing the plan, any measure one chooses to compare Aer Lingus productivity, for example, passengers per member of staff, with other carriers such as Ryanair or easyJet demonstrates that we are a long way from levels in those companies. We are not in a race to the bottom but one to ensure we have a viable future.

At the time we sought consent to proceed, we acknowledged that it was the remit of the Government to either grant or refuse such consent. I acknowledge that consent has not been granted. We gave a commitment at the outset that we would not take any action. In simple terms, having asked for consent, no other action was taken. We have now clarified for the benefit of the Department that we no longer wish to pursue the request. I provided this clarification on Monday afternoon when I met the Secretary General of the Department.

As regards my remuneration and that of my colleagues, as a director of Aer Lingus the full terms of my remuneration are published in the company's annual accounts, as are those of Mr. Dunne who is also a director. As I do not have the accounts to hand, I will not mention figures to avoid the accusation of misleading the committee. I am happy to provide Deputy Higgins with a copy of the annual accounts which provide full details of the remuneration package.

Deputy J. Higgins

I assume it is worth more than a €9,000 watch.

Mr. Walsh

I hope so.

Senator Morrissey

The watches are going cheap today.

Senator Dooley

At second hand values.

Mr. Walsh

With regard to outsourcing, we examine the cost of providing a service internally and that of an equivalent external service. Flight Directors, with which we have worked for several years, is a specialist company dealing with aviation, which does not deal with other issues. Many airlines do business with the company.

It is important to note that while we often focus solely on Ireland, call centres address calls on a European rather than exclusively Irish basis. Given time changes and languages, the service in question can best be provided by specialist companies. We make a simple analysis of how much it costs to answer a call internally and how much it costs for a equivalent service provided at an equivalent standard. The quality of service is often superior, for example, in the area of languages because we do not have the necessary resources internally.

Deputy P. Carey

Has Aer Lingus established the comparative figures?

Mr. Walsh

Yes, they have been fully disclosed to the trade union group. I do not wish to appear to be evasive but we are in a process of direct negotiations with the trade unions. Like all negotiations, they are sensitive and I would prefer to leave the negotiation process, which has been in place for a number of weeks, intact. All the details have been fully disclosed and we have opened the books to the trade union group in terms of internal costs and the costs of equivalent external services.

As regards Deputy Seán Ryan's question, when I met the trade union groups at the launch of the business plan, they requested that they be given an opportunity to identify or examine alternatives to outsourcing. We were happy to agree to do so and this process forms the basis on which many of the discussions, in which I am not directly involved, are taking place. I do not wish to comment on them at this stage.

We have operated a number of successful voluntary severance schemes. It has been widely accepted that the terms we have offered are generous — they have been criticised in some quarters for this reason. According to the latest information available to me, we have had 780 applicants for voluntary severance across the organisation. The closing date for submitting an application is next Friday, 15 October. With 15 days remaining before the closing date, at the close of play yesterday the number of applicants was 780.

Deputy S. Ryan

According to the feedback I am getting, the company is taking a gun to the head attitude. I do not know if that is correct.

Mr. Walsh

I cannot comment because I do not know the specific nature of the feedback to the Deputy but we have offered generous terms. It is clear to us that because of the changing nature of the business many of the activities in which we used to be involved are no longer relevant. I pointed out this previously.

The benefit of having Internet sales flows through the organisation in terms of revenue accounting. In addition, much of the processing necessary in the past as a result of having so many paper tickets is no longer required. It is not necessarily a matter of trying to get people to work much harder than they do. It is the case that the activity engaged in is no longer relevant. For that reason, we have offered generous voluntary severance terms. It is a voluntary scheme; we have not spoken about compulsory measures on which the previous Minister had expressed his views. There has been significant interest in the scheme and it is accepted that we have been generous in the terms we have offered.

Deputy Eamon Ryan

I missed the earlier part of Mr. Walsh's presentation as I was at another committee meeting, but the paper in front of me gives a lot of the detail. I have two main interests, one of which is related to fuel and the other to the Minister and the issue of consent. Mr. Walsh has stated fuel accounts for about 14% of costs and that Aer Lingus is currently hedged at a figure of 100%, with a figure of 68% for next year and one third in 2006. Is the 14% cost based on the company's last accounts, or on current arrangements? What is the average hedging price? Mr. Walsh stated it was lower than the spot price. Can he indicate how much lower? Is he aware of the concept of Hubbard's peak, the well known analysis that world oil production has possibly reached its peak? Far from cost and supply assurances from OPEC, I hear that the reality in the market is that it cannot pour any more oil. What we have is a fundamental shift in the long-term and medium-term price of oil as demand now exceeds supply which I am sure the Progressive Democrats will understand. Has Aer Lingus management taken this into account in its €1 billion investment decision for long haul aircraft? Will it take it into account in terms of the mixed market for which Aer Lingus wants to go? I imagine that short haul aircraft are much more fuel intensive than long haul aircraft. Is Aer Lingus not an operator that will always be dependent on short haul aircraft? Mr. Walsh commented that prices to passengers will decrease in coming years. How can he square this with the fact that the company's hedging price will disappear in the next three years?

My second question is in response to what Mr. Walsh said to Deputy Higgins about the Minister's consent. Had the previous Minister for Transport set out a timeframe within which he hoped to get back to Mr. Walsh with an indication of whether the Government could give consent? Did this influence his decision last week to withdraw his prospective bid? Did the likelihood of a change in the previous Minister's thinking have any effect? Prior to making the decision, did Mr. Walsh approach the previous Minister to ask whether it was likely consent would be given one way or the other?

Senator Ross

I would like to make one or two observations and then ask questions. It must be a very strange feeling for Mr. Walsh to come to committee meetings of this sort. He seems to attract every malcontent in the Oireachtas on the afternoons he comes here and gets a totally unrepresentative opinion on what is actually happening.

Chairman

Is the Senator included?

Senator Ross

No, I am not. I want to say something different. I am one of those who feel that what Mr. Walsh has done is absolutely commendable for which he should be applauded. It is extraordinary that every time he comes here he receives the most amazing criticism. The reality is that what he has done is turn the airline which was about to go bust into a very profitable one, certainly at a cost. When he comes here, he attracts attention from people like Deputy Higgins and Deputy Ryan who really come here to complain about what he has done.

Deputy S. Ryan

Excuse me, I have complimented the man and the staff on what they have achieved and I want the Senator to accept this.

Senator Ross

I accept part of what the Deputy said, but let me say more. There has been a strong trade union lobby in action in recent days. I do not know whether it telephoned Deputy Ryan, but it telephoned many others in this House to tell them to come down here and to give Mr. Walsh a hard time. People should be aware of the fact that while some were not contacted by the trade union, others were.

Having said that, I congratulate Deputy Higgins on one matter. As a very enterprising guy, it is tremendous that he is asking questions about hedging. He ought to know that it is one the most sophisticated forms of capitalist dealing on the market. If he is advocating it, I congratulate him for his conversion.

Chairman

Will the Senator ask questions? There are Deputies who want to ask more.

Senator Ross

I would like to congratulate the Deputy for his conversion to this form of activity in the commercial world. Let us hope we hear more of it from him and others. Hedging is a particularly laudable way of ensuring one does not get caught out.

Deputy S. Ryan

The Senator would know all about that.

Senator Ross

I know a great deal about it. It is something of which those on the left have traditionally disapproved and in which they are now becoming experts. I welcome this.

I would like to ask a question, but not about the presentation Mr. Walsh made to us. I would like to ask him about the relationship between Aer Lingus and Aer Rianta and it has nothing to do with what happened in the last two days, in case anyone gets sensitive about this. In its workings Dublin Airport is considered by many commercial travellers and others to be a complete and utter shambles. It was voted the worst airport in Europe last year by the Dublin Chamber of Commerce. Is this a hindrance to the activities of the commercial airlines, in particular Aer Lingus? Are matters there making it so difficult for a commercial airport——

Deputy Shortall

What is the point of this?

Chairman

The Senator has a right to put a question to Mr. Walsh.

Senator Ross

It is very relevant. Did Aer Lingus make representations to Aer Rianta or the Department of Enterprise, Trade and Employment about the need for a second terminal? Did it make an entrance into that controversy? Was it frustrated by Aer Rianta in any way?

Deputy Shortall will probably not like my third question, but that is not a reason for not asking it. Is the system of political appointees to the boards of semi-State companies, practised by the Labour Party and others in the State, an obstruction to commerce? Do those politically appointed have a loyalty to anything else but the commercial well-being and mission statement of Aer Lingus? Has this been a difficulty? Would it be helpful if people with a more commercial rather than a political background were appointed to the boards of Aer Lingus, Aer Rianta and other semi-State bodies? Mr. Walsh can only speak for the one to which he is attached.

Deputy S. Ryan

Will the Senator speak about Independent Newspapers?

Senator Ross

If the Deputy wants the floor, he can go ahead.

My final question relates to the future of the airline. It seems Mr. Walsh cannot say anything about its ownership. As a commercial director of the airline, can he say something about what he considers to be the best direction with regard to ownership of the airline? In other words, would it be preferable to go back to the good old days when the State owned Aer Lingus and it nearly went bust? Would it be preferable to organise a management buyout? Would it be preferable if it was privatised in a retail sense? Would it be preferable if there was a trade sale? In Mr. Walsh's commercial judgment, which is the best case scenario?

Deputy M. Brady

I congratulate Mr. Walsh on the manner in which he has turned Aer Lingus around and, more importantly, congratulate the workers and trade unions who played a significant part in that success. The spin has been that Mr. Walsh was solely responsible for the turnaround but it would not have been possible without the co-operation of the staff and unions. I believe Mr. Walsh was formerly the manager of another airline, Futura. He might elaborate on this previous role and explain how it panned out.

No. Dublin Airport is an extremely difficult environment for the airlines. Our views on the airport can best be assessed through the submissions we made to the Commission for Aviation Regulation which are a matter of public record on its website. We have been openly critical of Aer Rianta in the past due to its lack of consultation with the airlines. It creates a difficulty for all airlines operating at Dublin Airport. I hope this situation will change going forward.

I have an excellent relationship with all of the directors of Aer Lingus. I have no criticisms of any of them, and I mean that both on and off the record. They do an excellent job.

The issue of the future ownership of Aer Lingus is an issue for the shareholder. The critical issue for management is access to capital going forward. It is not so much whether I have a view as to what form of ownership there should be. What is critical is that we require clarity regarding the issue. In particular, we require clarity with regard to our ability to access funds to ensure we can invest in the airline. The issue was addressed by a number of Deputies.

With regard to Deputy Martin Brady's question, I am the first to acknowledge that credit for what has been achieved in Aer Lingus should go to everybody who works for the company. I have never sought to present it as the work of any one person or a small group of people. Credit is due to everybody. At every opportunity I acknowledge the contribution that has been made by everybody who has worked in Aer Lingus in achieving what we have to date.

I was the CEO of Futura from June 1998 to April 2000. I took over the company when it was in significant difficulty, and it turned around under my leadership and was profitable during the period I was there. Aer Lingus has since sold 80% of its shareholding in the company and is now a minority shareholder. I cannot comment on the current trading of Futura.

I do not know whether Deputy Martin Brady was present when I reiterated that there is no conflict of interest in anything that I or my colleagues have done. The full management team in Aer Lingus is solely focused on what we believe is right for the company. I am not the benefactor of anything that has happened or will happen. I reject any suggestion of a conflict of interest, or that I am motivated by personal reward or gain. That is completely untrue. I have never acted in such a fashion. I have, at all times, acted in the best interests of Aer Lingus. I have been proud to work there for 25 years and I look forward to addressing the challenges the company faces going forward.

It is an extremely challenging industry. We do not seek to overstate the nature of the challenge we face. We are realistic and responsible in identifying what we believe will challenge Aer Lingus in a competitive environment and what we must do internally over the coming years. The development of the business plan was driven by a view to making Aer Lingus viable, to ensuring that we have a long-term future and to ensuring that Aer Lingus represents value for the product we provide to our consumers.

I think I have addressed the question the Deputy asked.

Deputy M. Brady

My question has not really been answered. If Mr. Walsh's proposals go ahead, he will probably become a multimillionaire. He will be one of the main benefactors because he is the chief executive of the company and he will own the company. I have seen this happen with Eircom.

Chairman

On a point of information, the management buy-out has been totally abandoned. It will not be pursued unless the Government decides to make some instructions in that regard at a later stage.

Deputy M. Brady

It will be pursued over my dead body. I saw a management buy-out in Eircom where I used to work. They robbed the place and gave a worse service to the public. It will be the same in Aer Lingus if the buy-out goes ahead.

Deputy Eamon Ryan

The Government has said absolutely nothing. It is remarkable for the Government, in engaging in a normal business dealing, to set a deadline and to say nothing at the end of it. The first question the committee should ask is what is the Government's view. It is still unclear.

Deputy M. Brady

I am a Government Member and I have given my view.

Deputy Naughten

I would like to ask three brief questions. When I asked earlier about outsourcing, Mr. Walsh said he had not spoken with the IDA or Enterprise Ireland, both of which are trying to encourage service companies to establish in this country. I wish to discuss freight and the question mark over the One World Alliance. Does the ethos of Aer Lingus, a State company which is owned by the taxpayer, now relate purely to the issue of profitability? The public service remit which Aer Lingus has traditionally had is one of the reasons it was established in the first place. The issue is important not only to the Irish economy but also to the service provided to the consumer. Perhaps Mr. Walsh will comment on that.

What is the impact on the company's planning of the Government's indecision on the future of Aer Lingus? I refer to access to additional capital and the company's future ownership.

The Taoiseach seemed to indicate in the House earlier that he was partially aware of the contents of Mr. Walsh's presentation to the committee today. I am sure the Department is sometimes briefed on the content of such presentations. It seems that while the Taoiseach was aware of the topic to be considered at this meeting, he was not aware that Mr. Walsh indicated to the Department last Monday that he was not proceeding with his proposals. It is somewhat confusing. If Mr. Walsh has any information in that regard, he might shed some light on it.

Deputy Shortall

I refer to stories about the manner in which staff redundancies are being dealt with. The jobs of many of my constituents who work in various sections of Aer Lingus are under threat. Aer Lingus has always been seen as a good place to work because its jobs have been considered good and its conditions of work have been regarded as fair. I am happy to admit that there may have been a time when it was too good a place in which to work. Employment at Aer Lingus was regarded as secure and good until recent times.

I am disappointed to hear reports of staff encountering a heavy-handed approach, bordering on threatening. Many workers are being faced with an ultimatum — they are being told to get out, or else. In fairness, I do not know if Mr. Walsh has spoken to members of staff. I am sure my colleagues, as public representatives, will agree that many people are scared about what is happening. Aer Lingus workers feel they will be threatened if they do not accept the package. They do not know what will happen to them if they do not accept it. Do they have an option? Can they stay on? What conditions will they face if they stay? What kind of work will they be doing?

I do not think it is acceptable to treat staff in such a manner in this day and age. To try to enforce change on such a basis is a retrograde step. We all want Aer Lingus to continue to be a successful company, regardless of the number of jobs that are lost. Successful companies thrive only when relations are good and people are treated with dignity and respect. I am concerned at some of the reports I have heard about the atmosphere and culture that is creeping in within the company.

Mr. Walsh has said that people have options and that the company is in negotiation with the representatives of the unions. The two deadlines dovetail, in effect. Mr. Walsh has said he is prepared to explore alternative ways of achieving reductions in cost. The 15 October deadline is looming for workers, many of whom feel they have to accept the package. I am aware that Mr. Walsh expects that there will be a rush in the final days. Will he consider suspending the deadline to allow management and staff to meet to consider alternative ways of achieving the reductions?

I understand it is projected that the outsourcing proposals will result in savings of approximately 20%. Is Mr. Walsh prepared to suspend the 15 October deadline and to examine alternative ways of achieving savings of 20%, for example, by means of greater productivity or flexibility? Will he do that? Aer Lingus workers want to deal with this matter in a reasonable way. Will he allow them to negotiate with management?

Mr. Walsh will have to continue regardless of what happens, hopefully as chief executive. I hope he will have a willing and active workforce, which is essential. He will lose a great deal of goodwill if he continues to deal with industrial relations issues in the manner he has been dealing with them in the last month. It is disappointing that there has been a downturn in relations within Aer Lingus. It is not a progressive way of dealing with staff issues.

It is curious that the Government has put out a spin to the effect that management is seeking a management buy-out. We will find out in the future why such a message was transmitted, particularly by the former Minister for Transport. The chief executive has told the committee in no uncertain terms that there was no question of a management buy-out — it was an investment proposal. That is just a political point. We have yet to discover why the Minister, Deputy Brennan, sought to portray the proposal in such a manner.

It is essential that Mr. Walsh should give the Cabinet sub-committee, which is supposed to be considering the future ownership of Aer Lingus, a report on the likely investment requirement in the years to come. I do not know how the issue can be considered by the sub-committee without such an input from the company's senior management. I will pursue that issue with the Minister and the Taoiseach. How can the Government make a decision on the company's future ownership if it does not know what the capital requirement will be in the coming years? I would like Mr. Walsh to give the company more information on the likely capital requirement and the basis for such projections. The committee needs such information if it is to give serious consideration to the best ownership option for the State airline in the coming years.

All members of the committee have praised Mr. Walsh and the staff of Aer Lingus on numerous occasions for their achievements in recent years. The company has achieved reasonable fares and a reasonable level of service, while reporting strong profits. I urge Mr. Walsh to consider that most people think he has gone far enough. What is wrong with such a performance? Many people are concerned because Mr. Walsh seems to want to bring the company much further in a particular direction. As a representative of shareholders and taxpayers, I would like to know the benchmark figures and the unit of cost measurement being used. Can Mr. Walsh give us some idea of the comparative costs? Are we considering cost per passenger or staff per passenger? What is the unit being used and what is the current gap between Aer Lingus and Ryanair and other low-fare airlines? We need hard and fast data if recommendations are to be made on the way forward.

Senator Morrissey

As I remarked the last day Mr. Walsh was here, considering the competitive nature of the airline industry and the need for quick decision making, I understand his comments to constitute an appeal to Government to get on and reach a conclusion. Mr. Walsh needs access to funds to determine his direction. That is critical. Before leaving here, I would like to know precisely how long more Mr. Walsh can wait to access those funds.

I remind members of the problem Aer Lingus faced when it compiled a business plan in 2000. The plan assumed the company would generate significant cash from operations in the order of €150 million per annum. Not only did we not do this due to the crisis we faced, but we made losses which created a drain on our cash resources.

This change was rapid. In 2000, when the business plan was produced, Aer Lingus was profitable and envisaged making a profit in 2001. Due to internal and external events we did not generate cash from operations and moved from being a viable, profitable airline into a candidate for bankruptcy. For this reason, we will proceed with caution. We have raised debt, although it could be argued that this is unnecessary. We have done so because it is the correct, prudent approach but we constantly review it. In addition, it makes us focus continuously on the commercial nature of the airline business. To answer the Deputy's question, this is the mandate we believe Aer Lingus has.

Deputy Naughten

Based on all the business plan's predictions being correct, is there a requirement for outside capital?

Mr. Walsh

Aer Lingus should raise money. If it was a normal company, that is, privately owned, we would have raised money already instead of waiting until we needed it. For example, Lufthansa, recently raised €750 million through a rights issue and has this cash sitting on its balance sheet in the bank. It has not identified what it wants to do with it but raised it because it was in a position to do so, which is exactly what companies should do. In other circumstances Aer Lingus would have already raised equity which we would be in a position to do, given the positive story we have to tell. One does not wait until one needs cash but raises it when possible. The correct approach for Aer Lingus would be to do so today.

It realises that if the required level of service is not given, business will go to somebody else who will give it. I compliment Aer Lingus management and staff at all levels and previous staff who have made a tremendous contribution to ensure we have a national airline which is currently one of the two profitable airlines in Europe. It is a credit to the aviation industry here that both of these companies are Irish, even if they are in serious competition with each other.

The joint committee adjourned at 6 p.m. sine die.