JOINT COMMITTEE ON TRANSPORT debate -
Wednesday, 26 Jan 2005

Aer Lingus: Presentation.

Chairman

I welcome Mr. John Sharman who is accompanied by Mr. Greg O'Sullivan, company secretary. Owing to commitments, Mr. Sharman was in a position only this morning to forward his opening statement. That is the reason members did not receive the statement until now.

I draw attention to the fact that members of this committee have absolute privilege but this same privilege does not apply to witnesses appearing before the committee. 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 House or an official by name in such a way as to make him or her identifiable.

Perhaps Mr. Sharman would like to make his statement. I thank him for appearing before the committee because members have expressed serious worries with regard to Aer Lingus. I know he will be only too glad to make us aware of the up-to-date position.

Mr. John Sharman

Thank you, Chairman, for giving me the opportunity to comment on developments at Aer Lingus. As members of the committee will be aware, in June 2004 the board approved a business plan presented by management, which was designed to meet the challenges of the rapidly changing marketplace in air transport. Since that date, Aer Lingus has been engaged in the process of implementation of the plan. This has involved the announcement of new fare structures, both long haul and short haul, in September 2004 and the implementation of cost savings and efficiency measures designed to permit the company to be competitive in the market.

The fare structure has matched developments in the market and has been pioneering on transatlantic operations, enhancing both customer choice and flexibility, and reducing fares in real terms. As foreshadowed by the Aer Lingus business plan, yields in the market have continued to fall, with January 2005 being approximately 15% below the levels of January 2004. Given surplus capacity worldwide, low barriers to entry and philosophical and practical commitment to deregulation, we see intensifying competition compared to our forecasts both on short haul and long haul routes, and continued downward pressure on yields and revenue when compared to our business plan.

This market environment is not a reflection of the economic cycle nor a continuation of the downturn in air transport following the terror attacks in 2001. It is reflective of a fundamental change in the industry, particularly on short haul routes. Air transport is becoming a mass transport industry, providing customers with low fares, a wide choice of destinations with service levels appropriate for short flights. In this new environment, all aspects of cost and productivity have had to change to enable airlines to survive as viable economic entities.

Over the past three years, the company has successfully reduced its cost base with the co-operation and support of all its stakeholders, including the staff who now own and stand to benefit from 15% of the airline. The reduction in cost base has reflected not only reduced staffing levels but has owed much to reduced distribution costs through the introduction of www.aerlingus.com. Some 85% of bookings in Ireland are now made through the Internet and 65% over the whole network. Self-service check-in, the introduction of a single-type short haul fleet, increased utilisation of aircraft and a significant expansion in the route network going from 42 in 2001 to 68 in 2005 have all played an important part in establishing a business platform upon which to build a viable, strong and competitive airline.

The implementation of the Aer Lingus business plan has already commenced and seeks to establish the airline for the future as an entity able both to maintain its current position in a fiercely competitive market and to take advantage of anticipated future growth in the industry. The business plan, having been approved by the Aer Lingus board, has been discussed with all stakeholders in the company. Fundamentally, it seeks further to focus the business of the airline, to reduce unit costs through expansion of routes, changed work practices in key areas, and further reductions in costs, including staff costs. The company announced a voluntary severance and early retirement package in September last year on generous terms. Some 1,645 staff have applied for that scheme, of which to date 600 have committed to leave the company or have already left.

Recognising that the changes sought by the company require discussions and agreement with the trade unions, the company has been supported by the facilities of the industrial relations machinery of the State for the past six months. Recently, the Labour Court has agreed with the company and the trade unions to consider related issues, of which there are many, as a single set of issues for hearing. The company welcomes this development as a way of ensuring a speedy resolution of these issues, which is now overdue. The issues concerned are fundamental to the airline's productivity and cost base and its ability to compete on a more level playing field with its principal competitors.

There has been considerable press speculation and comment as to the management changes at Aer Lingus. Aer Lingus is very fortunate in having able and experienced management in depth in all areas of activity in the company. Following the resignations in mid-November, there has been a successful transition to an expanded executive which I chair pending the appointment of a new chief executive. The direction of the company under the authority of the board remains the same and I have every confidence that the management will continue to develop Aer Lingus as a viable and competitive airline.

Chairman

Thank you, Mr. Sharman. I would like to put a few questions to you. Regarding Mr. Walsh's departure from Aer Lingus, do you envisage that his knowledge gained at Aer Lingus will be of significant importance should he decide to establish, as is alleged in some media, his own airline or set up with a competitor? Do you think the fact that Mr. Walsh has remained there for the past three or four months, after giving notice that he intended to leave, has been damaging to Aer Lingus? Will that have any effect with regard to the growth potential of Aer Lingus?

Mr. Walsh appeared before this committee some months ago and gave a number of commitments with regard to where he saw Aer Lingus going and his position in the company. He outlined to us what, as he saw it, Aer Lingus would be doing in the coming years. I wonder if that will be taken away from Aer Lingus and given to some private competitor to the detriment of Aer Lingus.

There is another very worrying matter in your statement. You stated that in January 2005 air transport was 15% below the levels of January 2004. If that downturn were to continue for the year, what would be the effect on Aer Lingus's profitability? Has this market share been lost by Aer Lingus to its competitors on the routes it serves, or is it basically that people are not travelling? That information would be of interest to the committee.

You referred to savings because of www.aerlingus.com. What have Internet bookings saved, approximately, in terms of salaries? We do not expect the figure to the last €1,000 or €10,000 per annum. If you would answer those questions, Mr. Sharman, I will then ask the other members of the committee what questions they wish to pose.

Mr. Sharman

May I take the question on market share first, Chairman? The reference in my statement to 15% was not a reference to market share but to the average price per ticket. The so-called yield is the average price per ticket. The yields in January of this year — the average we get per ticket we sell — are 15% approximately below what they were in January 2004. This is only one month so the point being that it is not our market share that has gone down but that in January, our revenues are down in terms of the yield per seat.

Chairman

Has Aer Lingus carried more or fewer passenger in January 2005 than in January 2004?

Mr. Sharman

We have carried more passengers. I do not have the exact figure. The reason for mentioning that in my statement is that a single year is part of a longer pattern. The Aer Lingus business plan and much of the work done by the whole management in 2003-04 predicted that the yields in the short haul market, not only in Ireland but probably throughout Europe, would decline significantly through the operation of increased amounts of competitors in the so-called low cost market. That has indeed proved to be the case. By introducing that figure, I was trying to highlight that where the commercial planners and the Aer Lingus business plan were forecasting is more or less where we are.

Taking the first point on the resigning executives from Aer Lingus, there are two points I wish to make. The first is that between them, the individuals concerned have approximately 47 years' experience in the aviation industry. They actually resigned from the company on 16 November 2004. In terms of access to information from 16 November 2004, I assure the committee that there was nothing which could have been learned since that date which would be of any great advantage compared with the amount of experience they have in the industry.

The second part of the question was whether the information they have would be damaging to Aer Lingus. I see no evidence of that. I have absolutely no knowledge of what their future careers will be but we already compete with very competent airlines, including Ryanair easyJet and Iberia which are all well managed airlines. It is entirely possible that one or all of those executives will end up with those airlines. I do not see Aer Lingus being in a different competitive position because of that.

Deputy O. Mitchell

I thank Mr. Sharman for his presentation but am quite astonished by it. If I read it and knew nothing that had happened heretofore, I would assume Aer Lingus was an extremely well placed company with no problems other than few minor outstanding labour relations ones.

Mr. Sharman did not mention that Aer Lingus has lost the management team which made the company successful or which led the successful revival of the company. From Friday, the company will have no senior management. The company has a lame duck chairman and has no potential to implement the central plank of its business plan which was to expand the number of routes. Mr. Sharman referred to that but did not mention how the routes will be expanded. No bilateral talks are taking place, of which I know, to ensure Aer Lingus has additional landing rights so that it can expand the number of routes into the US, Asia or the Middle East, which I understand is part of the plan. No sources of finance have been identified for the additional aeroplanes needed to implement this plan, although there is no terminal to facilitate them anyway. There is no certainty about the future structure of the company.

Why has none of these issues been mentioned? I know from Mr. Sharman's background that he will have a point of view about the future financing of Aer Lingus. What is his view on what should happen in this regard? Does he believe Aer Lingus is now an attractive investment for the private sector? Does he believe that is the road the company should go? Should it be sold, partially or wholly? If he believes that should happen, how should it be done?

Given that Aer Lingus has lost its successful senior management — I take Mr. Sharman's point that there is other management in the company — will that impact on the potential to attract sufficient funds to make it worthwhile to sell the airline? How long would that take? What would the lead-in time be? When new senior management is put in place, how long will it take for it to be bedded down and to make it possible to sell part, or all, of Aer Lingus?

Is Mr. Sharman aware of any bilateral talks which have been initiated or re-initiated to ensure additional landing rights in the US, China or elsewhere in Asia or in the Middle East? Has there been any progress in that regard? Obviously, the transatlantic routes are extremely important to Aer Lingus. Is Aer Lingus very vulnerable to the potential of low cost competition on the transatlantic routes if new routes are opened and there is some kind of open skies policy? It has been mentioned that the management team leaving Aer Lingus might move into that area, but that threat could come from anywhere. Is Aer Lingus very vulnerable in that regard and what can we do about it?

Mr. Sharman

I have been referred to in the press as a vacuum. I have been vacuous occasionally, but never a vacuum. I hope I am not a lame duck.

Deputy O. Mitchell

That was not intended as an insult. I realise Mr. Sharman will not be there forever.

Mr. Sharman

I wish to address that issue because it has been raised in other fora. I am content to stay on as chairman until the new chief executive is found and is bedded down, provided the Department wishes me to continue. I will then be quite content to retire back to where I came from as a non-executive director of Aer Lingus, which I am very proud to be. The notion that I am on the point of resigning or trying to create further instability to that which has been seen in the last quarter of last year is untrue.

Deputy O. Mitchell

I was not suggesting that.

Mr. Sharman

I thank the Deputy for giving me the opportunity to make the point.

The senior management, in terms of the chief executive officer, the chief finance officer and the chief operations officer, have gone. What we have done is expand the management. I would not have been content to take on the job of chairman if I had not been absolutely satisfied that, underneath, there are very competent senior managers who are actively progressing this plan. The committee will have noted that we have only sought a new chief executive officer in the advertisement and in the corporate search we are doing which is open to internal as well as external candidates. I cannot tell the committee what the management structure will look like following the appointment of a chief executive but the one I am leading is more than adequate to this task. I have satisfied myself on that and I have got to know many of them over them over the last two years. It would be irresponsible to suggest otherwise if I did not believe it. The company is adequately and well managed and I thank the Deputy for the opportunity to make that point.

I am not aware of any bilateral talks. The bilateral agreements east of here are pretty much what they are. Going as far as China, the landing rights are not in contention.

Deputy O. Mitchell

I referred to a more liberal arrangement with the US, specifically, and with Canada and countries of that nature.

Mr. Sharman

Specifically with the US, I am not aware at present of any proposed change. However, there may be discussions due.

Deputy O. Mitchell

In light of the airline's expansion plans and its hope to operate more routes into the United States, surely someone should negotiate landing rights on its behalf.

Mr. Sharman

The United States is one of the markets where we hope to expand and where opportunities for expansion exist. Other expansion opportunities may arise in Europe and perhaps farther afield to the east. To date, there is no business case for some of those but the world is constantly changing. As other areas develop more liberal regimes in terms of licensing and route licensing, opportunities may well appear. It is not just the US market in which the expansion may come. During one of the worst recessions in air transport in living memory, Aer Lingus added routes into Europe. The liberalisation in Europe has permitted a significant expansion of Aer Lingus's activity. The figures show the expansion of the network from 42 to 68 routes.

Deputy O. Mitchell

I understand that. Surely, however, the case made by the relevant members of the management of the airline — who are now on the point of departure — was that long haul routes would be expanded. Mr. Sharman stated that opportunities may come. However, they do not just come about and must be sought. Are there any plans beyond mere aspiration?

Mr. Sharman

Until the bilateral changes — I refer, in particular, to the US situation — expansion of our routes must be an aspiration. Would we want to expand? Yes, we would like to expand our destinations in the United States.

Deputy O. Mitchell

However, Mr. Sharman is not aware of any additional discussions taking place to ensure that such opportunities will arise?

Mr. Sharman

No, not at present.

Chairman

Mr. Sharman is basically stating that until the open skies policy is decided, there is nothing to discuss.

Mr. Sharman

We can aspire, encourage and cajole but until the bilateral changes, the open skies policy and the European implications thereof are settled, Aer Lingus cannot do that much.

Deputy O. Mitchell

I accept that. However, the Government is in a position to kick-start progress in that regard.

Mr. Sharman

The Deputy referred to low-cost competition. Even without a change in the bilateral agreement and the open skies policy, we already face such competition. American Airlines has announced that it will enter the market this summer. However, we have been facing competition from US Air and Delta. A number of airlines have been coming into our marketplace and competing heavily with us. Those airlines have subsidy behind them in the form of US Government support. Following the 2001 attacks, some $20 billion was invested in the industry in the United States. Furthermore, one of those carriers is protected, by law, in the United States from the consequences of the economic environment in which it operates. It is involved in a chapter 11 restructuring. This kind of competition is probably the most to be feared because it is protected and subsidised at the same time.

Are we concerned about competition? Yes. Putting the label "low-cost" on it is probably inaccurate. From information available to us, it is apparent that American Airlines will compete with us on fares. It is a feature of the marketplace that we must compete with these airlines.

Deputy O. Mitchell

What about funding and restructuring?

Mr. Sharman

That is a matter for the Department, which owns the shares. I will, therefore, avoid making a comment in that regard. I have not been asked to advise the Department about that matter. It has employed outside advisers for that purpose.

Even without expansion, Aer Lingus will need to replace its long haul fleet. Although no budget or business plan for this has been prepared as yet, discussions are under way with the relevant manufacturers because we will need to replace the long haul fleet as it ages. This will give rise to the question of access to capital. In light of Aer Lingus's current capital base, it would be difficult, without knowing from where the capital would come, to replace the long haul fleet. That is not an issue for today but it will have to be dealt with early this year.

Deputy O. Mitchell

Early this year?

Mr. Sharman

In the first half of the year.

Deputy O. Mitchell

It has already arisen. The management left because no decision was made. It is crucial that it be addressed as soon as possible.

Mr. Sharman

I cannot comment on the motivation of those leaving the company.

Deputy O. Mitchell

That was their stated reason.

Mr. Sharman

From the point of view of Aer Lingus, the commercial timing and the medium-term necessity to place orders for aircraft is probably optimal this year. We have not finished our negotiations with the relevant manufacturers but in round numbers the aircraft to which we are referring cost approximately $100 million to $120 million. We have seven such aircraft and we need to plan for expansion. That is the order of magnitude of the capital requirement for just the long haul fleet. In addition to this, we must also have capital for everything else — ground handling equipment, computer systems, etc. — we are obliged to purchase. It is not just the long haul fleet we must consider but the latter is a large component.

Deputy O. Mitchell

So the company needs to know, with certainty, whether that money will be available in the first half of this year.

Mr. Sharman

Yes. The reason is that there will come a time when there will be no more room to negotiate with the manufacturers and when we will be obliged to place an order. Such a proposition has not yet even been placed in front of the board. I am, therefore, talking absolutely in theory and I do not know whether it will come about in practice. The board will be faced with the optimal decision in terms of fleet replacement and if it is to be obliged to sign a contract of that order of magnitude, it will need to know how it will finance the deal at that stage.

Deputy O. Mitchell

Why was this matter not mentioned in the presentation?

Chairman

The opportunity to do so was left to the Deputy. I call Deputy Shortall.

Deputy O. Mitchell

I thank the Chairman. I really appreciate his pointing that out.

Deputy Shortall

I would have expected more in terms of the presentation to the committee. The tenor of the presentation is totally different to what we have been hearing during the past 12 months or so from other representatives of the company, particularly those at senior management level. I am also concerned that it is such a scanty presentation and does not make any attempt to grapple with some of the major issues facing the company. Members would have welcomed an opportunity to discuss those issues and to hear the board's position on them.

Unlike other members, I am not going to engage in an attempt to scapegoat Mr. Willie Walsh.

Chairman

I do not think anyone——

Deputy Shortall

There has been a great deal of that kind of behaviour from certain people, including the Chairman, during the past two months.

Chairman

Nobody tried to scapegoat Mr. Walsh and the Deputy should be aware of the rules of the committee to the effect that members should not refer to people by name who are not able to be present.

Deputy Shortall

No, I am referring to people who are present, namely, members of the committee.

Chairman

The Deputy referred to a particular individual who is not present.

Deputy Shortall

Yes, but my allegations are against members of the committee. I am principally concerned about the instability and uncertainty that has been created within the company as a result of the Government's failure to take decisions in respect of its future capital requirements, which were clearly outlined for us in recent months by Mr. Willie Walsh. The Government has failed to tackle those issues or to make decisions regarding the future ownership of the company. We were promised there would be a Government decision by Christmas. We are now approaching the end of January and there is still no indication that clear decisions have been taken by the Government. It is this type of uncertainty which has led to a situation where there is instability in the company, the company has lost its senior management team, including its chief executive, and there is uncertainty in regard to the chairperson of the board.

My understanding is that Mr. Sharman's term of office as chairman was up on 4 January. Can he confirm, if that is the case, why he is still in his position and what arrangement he has with the Government in terms of continuing in an acting capacity? What exactly is his current status and how long does he expect to be in his present position?

In recent weeks, there was much bleating about conflicts of interest and so on in the context of people inquiring if there was not a clause in Mr. Walsh's contract to prevent him having access to confidential information and so on. It came out in the media at that point that he did not have a contract. He said that perhaps this should have been covered but he did not have a contract. I would like Mr. Sharman, as chairman of the board, to explain if that is the case and why Mr. Walsh was in the position of chief executive of the company for the past three years without having a contract. In terms of good corporate governance, I would have expected this to have been one of the primary responsibilities of the board and Mr. Sharman, as chairman. Can Mr. Sharman explain this aspect to the committee?

I would also like to ask about the business plan because Mr. Sharman's reference to it in the presentation was not very specific. What is the current status of that business plan? Is it the intention of the company to implement it in full and what timescale is envisaged for this?

Mr. Sharman said that 600 people are in the process of going or have gone. How many people have actually gone at this point and what is the proposed phasing for the remainder? When is it expected to achieve the targets set out in the business plan? What is the estimated cost of the implementation in full of the business plan? Are there serious difficulties in respect of the phasing of these costs and the yield from the business at the moment? Is that why there is a 15% reduction in the yield compared to January last year? Are there problems in respect to the phasing of the business plan?

I have another fundamental question about the future of the company. Mr. Walsh spoke at length about the capital requirement in respect of replacing the long haul fleet and the intention to develop long haul business. He said that approximately €1 billion would be required in the next seven to ten years. Does Mr. Sharman accept this figure? It was on the basis of that figure that the case was being made for identifying sources of outside capital, and for an assumption that the Government was unlikely to provide that level of State funding and the absolute need, therefore, to examine privatisation or, at least, part privatisation.

Goldman Sachs was employed to advise the Government on these issues. Much of the Goldman Sachs report no longer stands up because of the changes that have taken place subsequent to the publication of the report. For example, one of the key issues it identified was the need to retain the existing strong senior management team, and the need to incentivise it, because the retention of the management team was absolutely critical to the future of Aer Lingus. This was taken as a given by Goldman Sachs and now the management team is gone. What is Mr. Sharman's view on the Goldman Sachs report? What has the board been saying to the Government in respect of the future capital needs of the company? What has the board been saying to the Government in respect of the future ownership of the company?

Mr. Sharman

Following the resignation at the end of May 2004 of the previous chairman, Mr. Tom Mulcahy, I was asked to take on the role of acting chairman until a permanent chairman could be found. I indicated that I would be happy to do so. Initially the warrant for that was the end of September. It was then extended to 4 January. Following the resignation of the senior executives in September, I was asked if I would be willing to continue for a further period, and I indicated that I would be willing to do so.

Deputy Shortall

For an indefinite period?

Mr. Sharman

It is currently until 31 March. I have indicated to the Government that if it is necessary to continue after that, because there is no certainty of finding a chief executive who will be in situ by that date, I will be happy to continue. It has not asked me to continue beyond that date but, if it does, I have assured the Government I will be happy to do so.

Deputy Shortall

Members of the committee were not informed of the extension of Mr. Sharman's temporary arrangement. When was Mr. Sharman asked to stay on beyond 4 January?

Mr. Sharman

I think it was early December.

Deputy Shortall

Perhaps Mr. Sharman can appreciate our concern about the drift within the company, which is not good.

Chairman

Mr. Sharman will probably reply to the Deputy, but I do not think there is a drift. He has intimated that he is prepared to stay on for as long as he is required.

Mr. Sharman

The reason I am willing to do so is partly to ensure there is no drift. The Deputy implied there is a leaderless and rudderless drifting of the company. I had an opportunity in the last few months to talk to many people inside the company and that was not the impression I got, which is one of the reasons I was willing to continue in my position. The company is not drifting. It is implementing in all the important areas the day-to-day job of running the airline, together with the change of management implicit in the business plan. This business plan was a collective effort; it was not the effort of the three individuals who have now left the company. They were fully supported by layers of management below them, and by a substantial portion of the workforce. I do not accept that the company is drifting.

The next question related to why Mr. Walsh had no contract. Part of the answer to that question predates my chairmanship. Mr. Walsh was appointed in 2001 following a search from external as well as internal sources. He was a pilot, and in the pilots' pension plan. Over a period, there were discussions regarding transferring Mr. Walsh from the pilots' plan to the general Aer Lingus plan, which was necessary because of the change in his work. Around the middle of last year, most of the consents were in. The previous chairman and Mr. Walsh were absolutely focused on implementing the survival plan in the sense that it was foremost in their minds. That is my best understanding of it. The first time Mr. Walsh and I really discussed why he had not signed a contract was at the end of October. Then the point became moot. In terms of the business plan and whether it is still our intention to implement it in full, the answer is that there has been no change in the plan. The plan was approved by the board and reconfirmed by it after the resignation of the three executives. At the end of November we had a board meeting after that event and it was clear that we needed to re-emphasise that the business plan was the direction the company would continue to take. That was re-approved by the board at that stage in the form of a statement sent to all staff. The answer to the question therefore is "Yes", it is our plan to implement it.

The subsequent question was how many of the 600 were already gone. I think the number is 488. However, between 480 and 500 have already left. With regard to the costs of the business plan, does the Deputy mean the costs of the incentive package?

Deputy Shortall

Yes.

Mr. Sharman

I think the cost is €95 million. It is between €95 million and €100 million.

Deputy Shortall

What is the phasing for that? Almost 500 have already left. What is the timescale involved for the full implementation of the business plan and when will the full cost kick in?

Mr. Sharman

The full cost will kick in in the accounts for the year to end 2004. The company will provide for that expenditure because it knows it is coming in its accounts to 31 December 2004. The cash expenditure in respect of 480 to 500 former employees has already been incurred and that cash has gone. The balance will come during 2005.

Here we come to the issue of the phasing. The business plan called for the implementation of certain aspects of efficiency measures over a period of about three or four months. We are now six months into that programme. Therefore, we are behind on the implementation of some aspects of the plan. The cash has not been spent yet, but will be spent during the course of 2005. Does that answer the Deputy's question on phasing? It was never planned that the money would all go out on one day. However, we obviously have to provide for it in the accounts.

Deputy Shortall

What is the target date for completing the implementation of the business plan?

Mr. Sharman

Does the Deputy mean in respect of the package for voluntary severance and early retirement?

Deputy Shortall

Yes.

Mr. Sharman

The target date for the majority is in 2005, with some left over until 2006 with the original business plan.

Previous representations in this forum stated that the cost of long haul aircraft would be approximately €1 billion over seven to ten years. I have no difficulty with that figure. The total capital expenditure during that period would be significantly more. That figure addressed just the long haul fleet.

Deputy Shortall

That depended on the bilateral agreements being renegotiated. There are many underlying assumptions in that figure, but Mr. Sharman has said to Deputy Olivia Mitchell that he does not make those assumptions.

Mr. Sharman

I am just talking about replacing the existing seven long haul aircraft.

Chairman

That is correct. The existing seven are being replaced, but that does not allow for any expansion with regard to new aircraft or new routes. Is that correct?

Mr. Sharman

No, it does not. The seven aircraft, if one excludes ancillary equipment, would probably cost approximately €800 million. It depends on what kind of aircraft we order. A Boeing 7E7 is a very new kind of aircraft and we will have to invest in ancillary equipment, machine tools we do not have, for it. The aircraft is new and has a composite structure. Much of it is made from fibreglass et al. If we were buying the Airbus aircraft we would also need a different kind of equipment from that we currently have. I am comfortable with the figure of approximately €1 billion for the replacement programme, not the expansion one.

I was not an addressee of the Goldman Sachs report. I have read it. I do not believe it came to any recommendations as to——

Chairman

Like all good reports.

Mr. Sharman

The point of substance is that it did say that if it was the case that the Department wished to engage in an IPO, the retention of senior management would be an important feature of that. I would not disagree with that conclusion. It is all about timing. If one wanted to launch an IPO immediately, one would need proven management inside the airline. Obviously we are currently engaged in a search for a successor chief executive. The response to the process has been significant. Happily, potential candidates would be instantly recognisable to the international financial markets and the international aviation industry. It may well be, depending on who the new chief executive is, that the Goldman Sachs rightly made point could be met fairly instantaneously. However, any new chief executive will take time to bed in. I agree with Goldman Sachs on that.

On the Deputy's final question, the board has not received from management at any stage a request to approve capital expenditure in respect of the long haul fleet. Therefore the board has said nothing nor made any recommendations to anybody about the level of capital it thinks it needs and neither has it had any requests from anybody as to how it will source that capital.

Deputy Shortall

Has the board had any approaches from the Government or the Department of Transport?

Mr. Sharman

No, not at all.

Deputy Shortall

Not at all?

Mr. Sharman

The board has not.

Chairman

Does Mr. Sharman know whether management had any discussion on the issue prior to recent events?

Mr. Sharman

In what terms?

Chairman

Did management discuss funding with the Government?

Mr. Sharman

I would think that almost certainly it did. I did not intend to be disingenuous. Obviously I have talked to the Department briefly, but not at any great length, about the forthcoming decision in respect of the——

Deputy Shortall

It would be of benefit to hear Mr. Sharman's views on that and those of the board.

Mr. Sharman

I cannot give the views of the board because it has not discussed the issue at all. There has been nothing to discuss in terms of——

Deputy O. Mitchell

What is discussed at board meetings then? This is the one difficult question facing the airline. How come it never comes up for discussion?

Deputy Eamon Ryan

On this point, does Mr. Sharman think that in discussions about long-term capital investment it is preferable that the Department should deal with the board of the company or directly with the management of the company?

Mr. Sharman

The question of the ownership of the airline is at the root of this matter. The ownership of the airline and where the airline can access capital is beyond the competence of the airline and its board.

Deputy Eamon Ryan

I agree with Mr. Sharman that the Department has to make a decision. In terms of informing itself on various options, with whom should it communicate in the company? The Department has been communicating directly with the management. Would it be preferable for the Department to communicate directly with the board?

Mr. Sharman

In the present circumstances, there should be communication through the board through me.

Deputy Eamon Ryan

And this was not the case over the past year. As Mr. Sharman stated, as a member of the board he was merely an addressee of the Goldman Sachs report. The ongoing negotiations over the past year to which we have all been privy have always been directly with the management and never through the board.

Mr. Sharman

I am not sure that there were negotiations of any sort with the management and I know there were none with the board. I think the word "negotiations" is incorrect.

Deputy Eamon Ryan

The discussions.

Mr. Sharman

If the Deputy's point is about the capitalisation of the company, I do not think there were extensive discussions with the management.

Deputy Eamon Ryan

If there are discussions, they should be with the board in the first place.

Mr. Sharman

That is probably correct.

Deputy Glennon

I welcome Mr. Sharman and Mr. O'Sullivan. I wish to address a comment to the committee. I refute any suggestion that I was involved in any scapegoating exercise, if I was one of the persons to whom Deputy Shortall was referring. My public pronouncement was to the effect that there was a perceived conflict of interest and I called on the former management to deny that conflict of interest. Over a period of three days they did not do so. In the circumstances where there was an absence of a denial, I called for them to consider their position. It was absolutely not a question of scapegoating; it was a simple question of non denial of a conflict of interest. I refute any suggestion to the contrary on the part of my colleague.

I welcome Mr. Sharman and thank him for clarifying the issue in respect of his own position. This question may pose some difficulty but can he give the committee a timeframe for when he expects the three existing vacancies to be filled?

I refer to the second paragraph of Mr. Sharman's presentation and ask for clarification on two separate issues. Mr. Sharman stated that the fare structure has matched developments in the market and has been pioneering on transatlantic operations, enhancing both customer choice and flexibility and reducing fares in real terms. How has this translated into passenger numbers? In the context of the business plan, is the company ahead or behind projection following the modifications made to the operation?

He further stated in the presentation:

As foreshadowed by the Aer Lingus business plan, yields in the market have continued to fall with January 2005 being approximately 15% below the levels of January 2004. Given surplus capacity worldwide, low barriers to entry and philosophical and practical commitment to deregulation, we see intensifying competition compared to our forecasts, both on short haul and long haul routes and continued downward pressure on yields and revenue when compared to our business plan.

He starts by saying it is in line with the business plan and finishes by saying there is downward pressure when compared to the business plan. Will he clarify precisely what is ahead of and what is behind the business plan projection?

I have two other points about the business plan. Will he give the committee more details about the company's plans for long haul flights other than transatlantic, particularly to South Africa, which has not been mentioned so far? Mr. Sharman referred to Asia which possibly leads on to Australasia. What is his comment on the figure of 1,000 people a week leaving Dublin Airport for Sydney?

One of the main features of the business plan has been outsourcing of various aspects of the company's operations. I am informed there has been a withdrawal of aircraft maintenance contract work from FLS and a growing volume of this work is now being done in-house by Aer Lingus and staff are being recruited to deal with this work. This contrasts starkly with other aspects of the business plan. I ask Mr. Sharman to comment.

I have some questions which I always asked the company's previous representation at this forum. I always began with the Internet question. The first answer I received from the previous management was that the volume of Internet bookings was 26%. I am pleased to see it has risen to 85% today.

When the previous management appeared before the committee I specifically asked them about what appeared to be the undermining and gradual isolation of or the withering of the shamrock in favour of the dotcom logo. I was assured that the dotcom logo was merely a marketing device and that the shamrock, the company's traditional logo, retained prime position. I was assured there were no plans to allow it wither away. I made that comment on a day when the committee received a 14-page presentation from the company in which the shamrock was not evident but where every single page displayed at least one dotcom logo. I note that the recent advertisement for the position of chief executive was of the same type. Will Mr. Sharman clarify this for the committee?

My final comment relates to staff morale. I have received several representations to the effect that staff morale is at a particularly low level. This is having an understandable knock-on effect on customer service. It was exemplified during the recent freak storm over Dublin Airport which caused the collision of two unoccupied aircraft on the tarmac. No staff were available to answer queries. Telephone calls to the Aer Lingus reservations office were rerouted to a call centre somewhere in the UK. The calls were eventually rerouted back to the Internet help line, at a time when two aircraft were out of commission for a period of days at a very busy time of year and several hundred passengers had to be accommodated at the airport for at least one night. Their telephone queries were dealt with by an utterly undermanned Internet help line which was never intended for that purpose. Is this part of the business plan and is it good customer service?

I have raised many times the question concerning outstanding pensions issues. I am informed that the 1.5% due to the staff from 1 January under Sustaining Progress still has not been paid four weeks later. Would it not be a good idea for the sake of staff morale if both issues were dealt with directly?

Chairman

The spokespersons of the parties are followed by individual ordinary members of the committee. Mr. Sharman can then answer the questions from Deputies Peter Power and Glennon together.

Mr. P. Power

I have only one question as many of the questions I intended to ask have been already asked.I, too, thank Mr. Sharman for clarifying his position in the company because there has been a lot of inaccurate reportingon the matter. That will certainly clear the air for many members of the committee.

The item on the agenda today was a discussion on future strategic proposals for Aer Lingus with the company chairman. I echo the comments of many of my colleagues that the presentation revealed very little by way of future strategic proposals. Deputy Ryan got to the nub of the matter by asking the questions I was going to ask. In a nutshell, the future strategy of the company depends fundamentally on how it will provide capital to finance the company over the next seven to nine years. All the experts in the aviation business agree on this. Any discussion of the future strategic proposals of Aer Lingus should concentrate primarily on that aspect.

Mr. Sharman correctly mentioned that the capitalisation of the company is a matter for the Government as the sole shareholder in the company. However, Mr. Sharman, not alone as chairman but as a director of the company for some time, along with his fellow directors are charged with the future strategic development of the company. Key to this development is how Aer Lingus plans to position itself in a rapidly changing and dynamic marketplace. This is what aviation strategy is about and we have heard little such discussion today. This is the question that we on this committee, as guardians of the public interest, are entitled to ask and to which we are entitled to get a fairly direct answer.

The consensus among experts in the area is that there are three ways of raising the €1 billion — some people say Aer Lingus needs €1.3 billion when all the capital requirements are taken into account. The Government could fund it wholly or in part; the company could get outside equity injection; the company could borrow the money; or there could be a combination of these. This matter is critical to the future direction of Aer Lingus. I am astonished that the board of directors has not addressed the future capital requirements — not capitalisation — and funding of the business, which is directly the board's responsibility under company law, as Mr. Sharman is aware.

It is extremely surprising that this matter has not been discussed at board level and the public will be very surprised to hear Mr. Sharman make such an admission today. It is a separate issue from the question of the future ownership of the airline as Mr. Sharman has correctly pointed out. I would have thought we would have heard discussion of investigations the company had made into long-term sources of borrowing. The company is making more than €100 million per year, which is a substantial bait on which to seek substantial funding on international markets. Borrowings of a multiple of annual profit would be the norm in the business.

While leaving aside the equity issue for the moment, many questions can be asked over whether the aircraft should be bought, leased or a combination of both and whether the company should issue bonds etc. These are the real strategic issues concerning Aer Lingus that are not being discussed at the board of the company, as we have discovered today. This is a matter of very serious concern. Why have those issues not been discussed?

Mr. Sharman

I shall take Deputy Power's question first and then Deputy Glennon's. The reason is that the long-haul fleet replacement is phased over time. In my two years on it, the board has considered the short-haul fleet replacement and then extension of existing leases and financing on the long-haul aircraft we already have. There has been fairly extensive debate about the proportion of leased aircraft, loaned aircraft and debt-financed aircraft on the short-haul fleet. This was debated at considerable length, I think, in 2003. The long-haul——

Deputy P. Power

So there has been debate on some capital requirements.

Mr. Sharman

Absolutely. We had extensive debate on the short-haul fleet.

Deputy P. Power

Mr. Sharman would forgive us if we thought otherwise arising from what he said earlier.

Mr. Sharman

I am sorry if I gave the impression that the board had not discussed capital. The board specifically approved a financing strategy for the short-haul fleet, which comprised buying some aircraft, trading in others and leasing aircraft from, I believe, ILFC on the best possible terms. Obviously, that has increased the debt levels in the company. Already the debts in the company have increased because of the replacement of the short-haul fleet.

The long-haul fleet replacement does not of itself necessarily come due until the expiry of the existing leasing and ownership arrangements for the existing fleet, which occur through the period 2006 to 2010. The management has informed the board that it is negotiating for proposals from Boeing and Airbus for a replacement fleet programme. That programme, depending on the commercial terms, will give rise to a capital requirement depending on the progress of the business plan and the amount of cash the business is generating, as the Deputy rightly pointed out. The reason I referred to the first half of this year is, that is when I believe the debate about how much and what source will absolutely need to come before the board. There has been no necessity — as a board, know it is coming — as the negotiations with Boeing and Airbus are by no means complete. They are actively ongoing as we speak. That will scope the amount of financial support available from manufacturers and the phasing of the programme. I am not trying to avoid the issue.

Deputy P. Power

I accept that.

Mr. Sharman

It is extraordinarily complex to work out. It is possible the manufacturers would offer to replace our entire fleet instantly, which might be a very good deal to do depending on the price of the aircraft, trade-in values etc. Those discussions are not complete.

What is for certain — hence my earlier comments — is that neither Boeing nor Airbus would give us the aircraft free of charge. I wish they would; if they are listening, they should please consider this. The negotiated transaction will give rise to a capital requirement, which the Deputy rightly pointed out could be financed by equity, debt or injection by the current owner. It could be any of those things. The board will need to debate and discuss, once it is decided, what is an appropriate debt level for the airline. Obviously I am a banker by profession. One of the reasons in the modern environment for many airlines getting into extreme difficulties — it would be invidious to name them all — is by overextending themselves with debt. In the end the banks own the airline and that is not a happy place for the airline to be. We have seen what happened with Sabena, for example. It does happen and it can happen.

Appropriate levels of debt for the airline are different now in the low-cost world than they were in the protected and regulated world. Those are all changing as well. I suspect the board will take outside advice. We will consult and satisfy ourselves as to what is an appropriate debt level for the company. Once that is known and we know and can reasonably forecast the implementation of the business plan and how much cash this business is generating, that will give the answer to how much equity the business needs. The source of that equity is not the board's decision. There will be discussions, no doubt, with the Department, but the board has not yet considered how much equity it needs. I have sympathy with the Department's position on that basis. Logically, the board itself will not be in a position to proceed in this context until the next step of negotiating with the manufacturers is clear. There is a little advance notice in this regard. I am sorry if I gave the impression the board was asleep on the job because that is not the case. The decisions we took on short haul allowed the company to establish a level of debt we considered prudent, bearing in mind what we are trying to do. We now have the major issue involving the long-haul fleet.

Deputy P. Power

That very much answers the question. Clearly, they are the key issues which must be addressed in the company. While I am much happier having heard the response, Mr. Sharman will understand that we must ask these questions.

Mr. Sharman

I understand.

Deputy P. Power

If one is to have a discussion on the future strategy of the company, they are the questions which must be asked.

Mr. Sharman

Deputy Glennon asked if we were ahead or behind on passenger numbers. We are ahead of where we thought we were on the business plan. We are behind on the budget, but ahead of last year.

Deputy Glennon

The company is ahead on passenger numbers and behind on budget?

Mr. Sharman

Correct.

Deputy Glennon

Is the company far behind on budget?

Mr. Sharman

Not badly. It is generally a low month. We are behind where we thought we would be.

Chairman

You are behind what you had predicted would be your January revenue. By what percentage are you behind, approximately?

Mr. Sharman

We looked at that this morning. These are forecasts as we do not have the January revenue yet.

Chairman

The month is not out yet.

Mr. Sharman

This is dealing with management information. The line management tells us how things look. The forecasts for January and the first quarter are falling from where we thought they might be.

Chairman

By approximately what percentage?

Mr. Sharman

It is not a dramatic or large percentage, but I do not have a figure.

Deputy O. Mitchell

Is Mr. Sharman referring to revenue or passengers?

Mr. Sharman

We are behind on budget — on passenger numbers — and slightly ahead on revenue. As with all these things, the answer is slightly complicated. These are forecasts as we have not finished January yet. We are measuring changes in what the management is forecasting the position will be and we are ahead on passenger numbers. We are also ahead on last year's passenger numbers. The forecasts in revenue are declining but not by a significant percentage. I cannot tell the Deputy the details.

Chairman

We accept that as the end of the month has not come. What would be the knock-on consequences for the profitability of Aer Lingus if that scenario were to obtain for a year? That is what worries most people here.

Deputy Shortall

Is the revenue down as a result of reduced fares? How can the company be ahead on passengers but down on revenue?

Chairman

In a previous submission, the committee was told there would be a quite serious reduction of up to 30% over the coming year in the average take per ticket sold.

Mr. Sharman

That is the yield.

Deputy O. Mitchell

It is part of the forecast. I am wondering how the company can be behind on the forecast if it is ahead on passengers.

Mr. Sharman

The yield, which is the revenue per passenger, is declining.

Deputy O. Mitchell

Is that not known?

Mr. Sharman

Not for January. We do not have all the figures. Management monitors——

Deputy O. Mitchell

If the company knows what its passenger numbers are, is its revenue not known?

Deputy Glennon

These new structures have been in place since September. What was the outcome for the last three months of 2004?

Mr. Sharman

Passengers and revenues were ahead of the business plan in transatlantic journeys. That was a combination of load factor, which is the number of passengers, and a slightly higher yield per passenger than budgeted.

Deputy Shortall

Why does Mr. Sharman think there has been a 15% reduction in January?

Mr. Sharman

That is simply what we are forecasting on the basis of last year's yields.

Deputy Shortall

How does Mr. Sharman explain a dramatic decrease in the yields if the last three months were satisfactory? Why is there a dramatic drop in January?

Mr. Sharman

In the business plan we foreshadowed marketplace activity, which we cannot control, and our intention to reduce our fare structure to attract volume. We read in the press of other carriers referring to a blood bath in the market during the winter. Frankly, that has occurred, although in a slightly different way than predicted by a certain person. Virtually no airline is earning yields this January which compare to those earned last January. That is partly because of capacity and market expectation. As members probably realise, I confuse myself. I am only a banker and the guys in question speak a different language.

When we say we are behind we do so in the context of business plans and budgets, much of which are about expectations. In time period "T", we forecast what we expect and the management system in Aer Lingus — like that in any other airline — tries to monitor whether we are behind the forecast or forecasting more than we did originally. A major change in the structure of the industry as a whole is that one must be very light on one's feet when the market itself changes. If London Heathrow suddenly becomes a premium market in which one can obtain an extra €10, one must be very fast on one's feet through the Internet to do so. Management systems are directed more towards events in the marketplace and current forecasts compared to where we thought we would be.

I do not have details of the number of passengers who leave Dublin for Sydney. I do not think we have them within the airline at all.

Deputy Glennon

I am reliably informed from an Australian source that it is 1,000 per week. I am aware that Mr. Sharman's predecessors were aware of that figure also.

Mr. Sharman

Was that during the Rugby World Cup? We do not have access to that information. The traffic may very well go through London.

We were asked if we have plans other than those involving transatlantic business. The transatlantic route is the focus of Aer Lingus for all kinds of important reasons. It is a very strategic trade, leisure and family route. I referred earlier to the bilateral arrangements east of here. We have free landing rights in virtually all the places the Deputy mentioned. So far, nobody has put up a business case to justify travelling to some of the destinations in question. From commercial discussions I have had with the executive, as it is now constituted, to the extent that a business case could be made, it would rest on utilising the long haul aircraft more heavily because, ultimately, the ability of an airline to be profitable and generate cash depends on how many hours per day its aeroplanes fly. As we heard, aircraft are expensive and cost more if they are not flying. The board would consider any business proposal that would add to the utilisation of our long haul aircraft if no regulatory or other constraints arose. I am not aware of a business proposition being made which satisfies that criterion. The Deputy is correct that there are no constraints in that sense on what Aer Lingus can plan to do.

As regards the question on our engineering arrangements, the Deputy's information is correct. Essentially, we are introducing line maintenance rather than heavy maintenance. The reason is that line maintenance affects punctuality and is, therefore, operationally critical to ensuring the company can control its line maintenance, have the appropriate engineering to prepare and fix aeroplanes, etc. I agree with the decision to bring line maintenance back in-house to ensure Aer Lingus is in charge of its own shop in terms of being able to fix things. Line maintenance is not, however, deep and heavy maintenance.

Deputy Glennon

That is at an almost embryonic stage. How much further does the company intend to go in that regard? Will all line maintenance be done in-house?

Mr. Sharman

I am not sure. We have brought line maintenance on the A320s in-house because we have other contractual relationships with FLS.

Deputy Shortall

Will the company take back former maintenance staff from FLS?

Mr. Sharman

I cannot answer that question. I do not believe that will be the case.

Deputy Shortall

Perhaps the letters of comfort will mean something after all.

Deputy O. Mitchell

Were that to happen, the letters of comfort would have to be surrendered.

Mr. Sharman

The Deputies will be aware that we are in discussions with FLS. I am, therefore, committed to duck that question.

Deputy Shortall

I presume it would make more sense to recruit former staff who moved to FLS, rather than recruiting new staff elsewhere.

Mr. Sharman

That issue will arise in the context of the economic debate on whether we want to bring maintenance and heavy engineering back into the airline.

Deputy Shortall

I understood the company had taken a decision on that issue.

Chairman

Deputy Glennon was asking questions and four other members are waiting to put questions. To be fair to Mr. Sharman, he has replied to the questions in so far as that is possible.

Mr. Sharman

I raised the issue of the corporate log the other day and I believe there is a commitment to the shamrock.

Deputy Glennon

The company has renewed its commitment to the shamrock. Will the emblem return to its position of prominence? It appears to have been allowed wither to its current state.

Mr. Sharman

I am sorry if it has appeared to wither. I have not dealt with this issue in any great detail, other than raising it at a meeting. One of the most valuable aspects of the company is its brand.

Deputy Glennon

If it was merely a marketing device, as we were informed, with the Internet accounting for 85% of bookings, it has probably achieved its purpose. The shamrock is an important emblem for a large number of the workforce and members of the community of north County Dublin and beyond.

Mr. Sharman

Yes.

Chairman

We shall leave the shamrock issue. Pensions and the payment of moneys due under Sustaining Progress were raised.

Mr. Sharman

The question in respect of pensions will come before the Labour Court early next month. It is one of the inter-related issues about which I had a meeting with the National Implementation Body and the Labour Court to determine whether this group of similar issues could be addressed simultaneously. The court has agreed to do so.

As regards the payment of 1.5% under benchmarking, discussions with the trade unions are ongoing. I do not know what point the talks have reached but I would be happy to provide the committee with a written response.

Senator Dooley

I welcome the presentation, particularly the forthright manner in which Mr. Sharman delivered it and his assertion that the hype of the departing executive team regarding the urgency of investment was wide of the mark. We can now see how wide of the mark——

Deputy O. Mitchell

I have been present throughout the meeting and did not hear Mr. Sharman make that comment.

Senator Dooley

I used the word "assertion". If the Deputy had listened to me, she would have heard it. The assertion by the former management team was wide of the mark, as Mr. Sharman noted, particularly when the negotiations between the management team and the contracting parties, namely, Airbus and Boeing, had not been completed or brought before the board.

Chairman

Will the Senator ask a question please?

Deputy O. Mitchell

Will the company be able to find €1 billion in a few weeks? Why would one pre-empt something like that?

Senator Dooley

Perhaps the Chairman should direct my questions to Deputy Olivia Mitchell.

Chairman

Will Senator Dooley direct his questions to Mr. Sharman?

Deputy Shortall

His position is called revisionism.

Chairman

Senator Dooley did not interrupt the Deputies. Please allow him to continue without interruption.

Senator Dooley

In light of this particular issue, does Mr. Sharman agree that a conflict of interest arose from the time the outgoing management team indicated it wanted to become part of an MBO and take a stake or ownership of the company? Before this committee the team euphemistically referred to the MBO as an "investment proposal". This goes to the nub of much of the discussion in the joint committee. I ask Mr. Sharman for his view on this aspect. Will he comment on the fact that a business plan was being prepared at the time?

I welcome Mr. Sharman's statement regarding the expanded management team. Will he comment further on the bilateral agreement? He indicated he has not played a role in the bilateral discussions. It has been stated that Aer Lingus is undermining the bilateral agreement by virtue of the charter service operating between Ireland and Florida, in particular, and the manner in which Shannon Airport is being technically bypassed because it does not have the capacity to allow people to board such flights. Will Mr. Sharman comment?

Senator Morrissey

I have two questions. In light of the competitive position in which Aer Lingus finds itself and the report Mr. Sharman has given today, which is more brutally honest than any report ever given by Willie Walsh, is Aer Lingus worth more or less than six months ago? If the Government makes the correct decision and allows a majority stake in Aer Lingus to be sold so that we can proceed to save the company, when would a successful flotation take place and an investor be found? It is stated on page 3 that it has agreed with the company and the trade unions to consider related issues. What are those related issues? Can Mr. Sharman specify one or two of the work practices he would like to see changed? Is it not the case that the first job of the new chief executive will be immediately to tear up the existing business plan and start again?

Mr. Sharman said yields are falling, costs are still high and a blood bath is imminent according to some of his competitors. How long can he last without a Government decision if he does not have money in the bank or the money that is there is required for investment? In any event he will not be able to afford to lose money.

On a lighter note, will anybody be conducting an exit interview with the outgoing chief executive?

Chairman

That is a job for Senator Morrissey.

Deputy Eamon Ryan

I may not be here to listen to all the responses but I will read them in the Official Report.

I thank Mr. Sharman for staying on in his position. I am sure it is an unenviable sticky mess he is involved in and it is a credit to him that rather than walking away, as must be the instinct of any chairman in such a situation, he has stayed on and is willing to stay on after 1 March. I commend him for that and for coming before us to try to explain what has been a very unfortunate series of circumstances.

I am not as reassured as Deputy Peter Power in terms of the nature of the role of the board versus what it might like it to be. I take the point that Mr. Sharman has analysed the investment decisions on the short haul flights. I have to draw from memory of previous committee meetings we have had. In autumn 2003, I believe the Minister — other Deputies may be able to confirm if my recollection is correct — requested company management to come back to the Department with what it believed would be the best position for the company with regard to future equity investment. Was the board aware at the time that the Minister had made that approach to management looking for recommendations as to future ownership and capital requirements? Was the board aware, or when did it become aware, of management's suggestion of an investment proposal in early summer last year? Was the Cabinet sub-committee due to get back to the management of the company at the end of September 2004 to confirm if it would accept such a proposal or was it due to get back to the board?

I am trying to confirm what exactly was the role as between management and the board. Enough detailed management questions have been asked. I appreciate that as chairman of the company, Mr. Sharman is not necessarily best placed to answer certain questions. If he cannot answer perhaps he can come back to the committee or to me with a rough age profile of the long haul fleet. My understanding is that the aircraft are not that old. I seem to remember the new long-haul Airbuses arriving. Can Mr. Sharman give a rough indication of the working life of those long haul planes? This is important in the context of what he said about the possible need to replace seven of them.

I believe negotiations took place yesterday between the French and Italian Governments on possible consolidation between those two national carriers. Has Aer Lingus been approached on any new consolidation arrangements?

Does Mr. Sharman think that within the contract to be put in place might be a condition that the chief executive would not start work in another airline company within a set period of time after completion of the contract?

He made the point that there has not been any final clarity on the bilateral arrangement in terms of landings in New York, no business case has been presented for long haul destination development in Asia, South Africa or any other location and the board has not considered how much equity it will need. Why was there such urgency on the part of the Government to decide on the equity issue before Christmas? Has the Government indicated to Mr. Sharman why it is so frantic to resolve the issue? If the board does know how much equity is required, no business plans have been presented for long haul flights and no bilateral arrangement is in place, although the capital in place for short haul flights, then why is there such a rush?

Given Mr. Sharman's comments in terms of over-capacity in the aviation business worldwide, and that oil prices were back up to near $50 a barrel yesterday, how does the board take into account the likely fuel cost increases that are predicted over the next five to ten years in any such investment decisions? The predictions from many commentators whom I support is that we are at a peak in global oil production and will reach a point of global oil depletion within the next five to ten years.

Deputy O’Flynn

I apologise for not being here at the start of the session. I was present when the meeting was in private session but I had to attend another meeting after that. I welcome Mr. Sharman and thank him for the work he is doing on behalf of Aer Lingus and the State.

I am not sure if my questions have already been asked in regard to the transatlantic route for Cork. The departing chief executive indicated to the authorities in Cork that he would introduce a transatlantic route as soon as the restrictions were lifted. Is that still on the agenda as a real possibility?

Why did the chairman drop the Cork-Milan route which was just starting to find its feet? The passenger numbers were reasonable but perhaps the yield was not high. I am aware that there is a demand for the service in Cork and many of the business associations have asked for this service to be reinstated for the next 12 months to see if it would be viable.

Deputy Glennon spoke about the importance of the company logo. Is Mr. Sharman proceeding with the proposal to downgrade the staff uniform and the level of professionalism among staff in terms of training, etc? The professionalism and courtesy of Aer Lingus flight staff is second to none. They are true ambassadors for Ireland.

My last question is if Aer Lingus is one of the airlines that has suggested to the Cork Airport Authority and the Dublin Airport Authority that it does not wish to pay for the use of air bridges in Cork Airport. We had a meeting with Joe Gantly last week who said the airlines did not want to use the air bridges because they wanted a quick turnaround and to reduce expenses.

I do not know if I will get any satisfaction in regard to my next point. I am not sure if Mr. Sharman has ever flown to Cork Airport but I got a cold coming off an Aer Lingus flight from Malaga on Monday, 3 January.

Chairman

Deputy O'Flynn got overheated.

Deputy O’Flynn

I had to come from the aircraft in hail and rain to get to the terminal.

Deputy Eamon Ryan

That could be a matter for Cork Tourism.

Deputy O’Flynn

People from Cork or the south-west region have been suffering like this with the absence of air bridges since 1961.

We are building a new terminal. We fought hard to get €140 million in funding from the Government. There is provision for six air bridges but we understand from the Dublin Airport Authority that these may not go ahead because of the cost factor, but more importantly because airlines are objecting to paying for the use of air bridges in addition to wanting a quicker turnaround. That does not sound like good passenger service to me.

I thank the Chairman and committee for agreeing to invite the three airport authorities to a meeting here in the near future. I deeply appreciate that so we can get to the bottom of the matter in regard to air bridges.

Mr. Sharman

I believe the question concerned whether I believed there was a conflict of interest from the moment the previous chief executive and his colleagues indicated that they wished to make an investment proposal. I was not chairman at the time and became chairman shortly afterwards. At that time, I had lengthy discussions with them because that issue was of crucial importance. I received assurances from them, which were satisfactory to me, that the proposal was not to have an MBO and that there had been no work done by them or third parties on such a proposal. I was assured that their approach to the Department — it was not to me — was a genuine approach to ascertain whether it would be appropriate to make an investment proposal. Nobody will ever know what this proposal would have been because it was never made. Having talked to the individuals involved and examined the wider financial markets I saw no evidence that there was an MBO or any other kind of proposal involving a change of ownership or subscription for shares in the making at that time. I have reasonably extensive contacts in the financial markets, both here and in London. I asked these contacts for evidence but was told there was none. On that basis, I do not believe a conflict of interest arose.

Senator Dooley

Does Mr. Sharman not accept that when somebody has stated he wants to become part of the ownership structure, regardless of whether he seeks to pursue that goal, it creates——

Deputy O. Mitchell

The point Mr. Sharman is making is that they never said that.

Deputy Shortall

That is the third time it has been clarified for the Senator. Was he not listening?

Chairman

Senator, with all due respect, that has been clarified several times. I believe you are on the wrong wavelength.

Senator Dooley

I accept the Chairman's ruling on the matter, but in light of what has happened——

Deputy Shortall

The Senator is continuing to jump on Willie Walsh.

Deputy O. Mitchell

If I were the acting chairman, I would ease out with my back to the wall. This is what happens when one leaves Aer Lingus or any other State agency.

Senator Dooley

I accept the Chairman's ruling.

Deputy O. Mitchell

One gets blamed for everything.

Mr. Sharman

The second point was on the business plan. The intention is to pursue this business plan. It is a complex plan and structured in a phased way. As the Deputy stated, its purpose is to try to reduce our costs in line with reducing yields. Some of the reduction in yield is deliberate. We are offering one-way tickets to London for €70, for example. That is a deliberate act but the key to it is to be ahead of the market. The market is actually ahead of us and that is the way it is going. The relevant statistic in this regard is dumb but important.

Prior to the business plan, Aer Lingus's average revenue per ticket was €83 and that of Ryanair was €40. We always talk about Ryanair but that is not our only competitor. Iberia, British Midland and Bmibaby fly to Dublin and therefore it is not a question of Ryanair versus Aer Lingus. The two companies, both of which I hope are successful Irish airlines, have to compete with all the others. Ryanair has its own business plan and cost base in Dublin.

It is quite difficult to see our average yield decreasing to a figure anywhere close to that of Ryanair but we cannot be too far apart. The fundamental point of the business plan is to reduce the cost base so we can generate cash at a lower average fare than €83 per ticket. This goes to the root of everything management is trying to do, which concerns everything from eliminating waste, where possible, to eliminating businesses in which we do not have to be and which cost us money. Some of the decisions in this regard are harsh decisions to have to make. However, unless we make them we will be less capable of competing in the marketplace with our principal competitors.

I do not believe the Orlando charter is undermining the bilateral agreement. It is completely within the rules.

Senator Dooley

If one tries to book a flight from Shannon to Orlando, one may develop a greater appreciation as to whether that is the case.

Senator Morrissey

Is Aer Lingus's position better or worse than that which obtained a year ago? That is what the taxpayer and investor want to know.

Deputy Shortall

I do not believe the future investor or current shareholders know——

Mr. Sharman

Half of me says that, in view of the commitment of the chairman, it is worth much more. However, I have never tried to value Aer Lingus because it has not been appropriate. In terms of its future earning potential, I believe it is worth more today because many of the elements of the business plan have been implemented. We have not implemented all the provisions of the plan but we are competing in the marketplace. I believe the strategic worth of Aer Lingus is higher today than it was a year ago. If the Senator's question is on whether the reputation of the current chief executive officer has damaged the value of Aer Lingus irreparably, it must be emphasised that it has not.

Senator Morrissey

That was not my question at all. If yields are reducing and the marketplace is becoming more brutal, how long can the company last if it does not have the cash base to sustain a dogfight in such a marketplace?

Mr. Sharman

The essence of the business plan is to store cash by reducing costs. We had a reasonable cash position at the end of 2004. It was better than that at the end of 2003, although it was reasonably healthy at that juncture. However, one must keep the costs moving down with the yields if one wants to generate cash. The squeeze in the other direction is to have falling yields and a static or rising cost base. That would use up all the cash. The cost base and net cash generation of the airline must be in line with what it is earning and capable of earning to achieve sustainable long-term value. That is the fundamental purpose of the business plan.

Senator Morrissey

Mr. Sharman's introduction suggested that there have been many changes and that the marketplace is ahead of the business plan in terms of competitiveness. Has the business plan become outdated?

Mr. Sharman

No, it has not. The current indications are that the market environment foreshadowed by the business plan is really here and, in some ways, is more competitive and slightly worse. However, we have made gains elsewhere. Fuel prices, for example, have been slightly lower than expected. Overall there is no structural change.

The Senator stated the first job of the CEO should be to scrap the new business plan. He is being asked not to do so. He is actually being asked to enhance and continue with the business plan that Aer Lingus has developed.

Senator Morrissey

He has been asked?

Mr. Sharman

He will be.

Chairman

We all know that the advertisements appeared only a couple of weeks ago.

Senator Morrissey

The question which arises is whether the board has made a decision that it will——

Mr. Sharman

The board reconfirmed its commitment to the business plan.

Chairman

That has been in the public arena for some weeks.

Senator Morrissey

That is what I am saying. Is Mr. Sharman stating that the new CEO is handcuffed?

Mr. Sharman

The new CEO is not handcuffed.

Chairman

The Senator is being over-the-top about this matter. Mr. Sharman has made it quite clear that the new CEO, whomever he or she may be, will be expected to implement the broad plans as prepared with the full support of the board, depending on what modifications may be necessary.

Senator Morrissey

I know what he said.

Mr. Sharman

I think I have answered members' questions.

Senator Morrissey

Does Mr. Sharman think an exit interview would be worthwhile? With all due respect, I asked Mr. Sharman a question.

Chairman

I do not think we can expect Mr. Sharman to answer that question.

Senator Morrissey

All large companies do so.

Deputy Eamon Ryan

What is wrong with the chairman? He is very touchy.

Deputy O. Mitchell

Would you blame him?

Chairman

You should come into my committee some day.

Mr. Sharman

I thought the Senator meant an exit interview here. Does he mean——

Senator Morrissey

My question was whether it was intended to hold an exit interview given that all large companies do so.

Mr. Sharman

The answer to the question is that I having been talking to Mr. Walsh virtually every day.

Deputy Eamon Ryan made reference in the initial part of his question to the Minister seeking guidance on the future capital structure of the airline. Was he referring to discussions which were held by my predecessor in September 2003?

Deputy Eamon Ryan

Did the company give a report to the Minister subsequent to that?

Mr. Sharman

Pursuant to those discussions, the previous chairman was asked whether, if the Government were to make a decision about a change in ownership, it would be possible and if there would be an investment market. I think he was asked because of his prior chairmanship of AIB. The question which was asked was not "What does the company want to do?" but rather "With your knowledge of the company as chairman of the airline, would there be an investment appetite in the marketplace if the Government were to make a decision of some description to change the ownership structure?" I believe that was the question. That was the methodology. I know that AIB was involved in that process which was a one-off.

Deputy Eamon Ryan

Was that just the chairman rather than the board in general?

Mr. Sharman

I think that is correct. That was with the chairman and the chief executive.

Deputy Eamon Ryan

Did the board itself not consider the issue?

Mr. Sharman

No. It did not. I was on the board at the time and I certainly did not.

Deputy Eamon Ryan

Does Mr. Sharman think that it is unusual for a board not to have involvement? Would he have preferred that it had?

Mr. Sharman

I think not. I have been involved in "privatisations" elsewhere, although I hate to use that word and prefer to use the term "changes of ownership and status". The discussions go through many stages and quite often the initial drivers — the how, as opposed to whether or not, decision — are interrelated with the state owner and rarely the whole board of the state enterprise. Usually it is with the management then running it and its chairman. I have been involved in three other situations in a professional capacity and that has been the pattern.

Deputy Eamon Ryan

Can I ask which ones?

Mr. Sharman

Closer to home.

Deputy Eamon Ryan

We will find out.

Mr. Sharman

That process of the "how" the thing is to be done is an interactive relationship. The decision as to whether or not to do it must be wholly with the state since it owns it.

Deputy Shortall

In any case, is there not a vested interest on the part of the board in recommending privatisation?

Mr. Sharman

Not necessarily.

Deputy Shortall

What board member does not benefit from the privatisation?

Mr. Sharman

This one. I have absolutely nothing to gain from the privatisation of Aer Lingus if it were to be so. In the other two situations, non-executive directors would stand to gain nothing.

Deputy Shortall

I was not specifically referring to Mr. Sharman, rather I meant the board members of Aer Lingus generally.

Mr. Sharman

They would not.

Chairman

Non-executive directors would have absolutely nothing to gain and executives would have the same rights as any other member of staff.

Mr. Sharman

That is correct. I understand the Deputy's point. Would that it were true all the time but it is not.

Chairman

It is not like a private company.

Mr. Sharman

No. It is not.

We have four A330 300s, which are currently approximately 12 years old and three A330 200s, which are probably much younger at approximately four to five years' old.

Deputy Eamon Ryan

What is their typical lifetime?

Mr. Sharman

There is no standard figure. An aeroplane, particularly an engine for one, is sometimes described as an old broom with a new handle and a new head because the parts are replaced at all times.

Deputy O. Mitchell

Are the aeroplanes expected to come to the end of their useful life by 2010?

Mr. Sharman

That would be a time at which we would be looking to replace the older ones.

Deputy O. Mitchell

Starting in 2006 and continuing to 2007.

Mr. Sharman

That is correct — the reason being that maintenance costs skyrocket the older an aeroplane gets. The marketing approach for flying young rather than old aeroplanes is very obvious. A rule of thumb is that many airlines will try to keep an average age across their fleets of younger than ten years. The average fleet age at British Airways is younger than ten years for the first time in 30 years and the fleets of Singapore Airlines tend to be young.

Deputy Eamon Ryan

I have found very useful the information which has been provided by the witnesses but my impression from the presentations given by the chief executive in the past year was that the new long haul aeroplanes were a new development rather for replacement. I could be wrong.

Chairman

No. What he stated here envisaged the cost of replacing the present fleet, which needed to be replaced, at somewhere between €700 million and €800 million and that new services requiring new aircraft would be a further additional cost.

Deputy O. Mitchell

I remember that understanding rather than Deputy Ryan's.

Deputy Eamon Ryan

We can check the record.

Mr. Sharman

So that we are clear today, what I have referred to is to replace the existing fleet which is part-owned and part-leased.

Deputy O. Mitchell

Is it true to state that between now and 2010, Aer Lingus will have to replace the fleet and add additional aeroplanes? Is that what we are really talking about?

Mr. Sharman

Correct.

Chairman

If we go to new routes, additional aircraft will be required.

Mr. Sharman

That is correct.

Deputy Eamon Ryan

If there is not an oil crisis.

Deputy Shortall

Does the figure of $1 billion refer to purchasing the replacement aircraft?

Mr. Sharman

That is their estimated cost.

Deputy Shortall

Is there is a wide range of possibilities in terms of the overall cost, depending on leasing arrangements and so on?

Mr. Sharman

No. Whichever is the selected manufacturer — we do not know — will expect to receive approximately $1 billion. They do not mind from whom. They will not sell them for less than the agreed price.

Deputy Shortall

There could be a leasing agreement over a ten year period.

Chairman

We are saying $1 billion is needed. The source of the funds could be a leasing agreement, borrowings or cash but the manufacturers must be paid that amount.

Deputy Shortall

There is no need to produce $1 billion up front.

Mr. Sharman

Airbus and Boeing will not let a buyer take an aeroplane away from their production facilities unless they are paid cash.

Deputy Shortall

What if there is a leasing agreement?

Chairman

The bank would have to pay the cash.

Deputy Shortall

Therefore, Aer Lingus does not need $1 billion in 2007.

Chairman

It will need access to $1 billion. The make-up of the money is what must be decided.

Mr. Sharman

As the aeroplanes will cost $1 billion, the manufacturers will want $1 billion. How we raise that sum is up to us as the airline. We can raise it by entering a leasing agreement; we could borrow all of it from banks if they were prepared to lend it to us, or the Government could put all of it in as equity or a mix of equity and debt.

The airline must look at how much debt we can realistically support with our revenues. We have a good idea but it is a work in progress. A leasing agreement is debt, it is the same as borrowing money from the bank. It is more sophisticated and involves taxation but it is still debt. We must work out how much debt we can support with our business model. Some of the $1 billion will definitely be debt but not all of it can be.

Deputy Eamon Ryan

I asked about the contract and future oil prices.

Mr. Sharman

: There was over-capacity in future oil prices. No inquiry has been made to the Department or me about consolidation. It is a brave man who predicts fuel prices. In my office I have a prediction given to me by an investment banker in 1991 that the long-term oil price after the first Gulf war would be $45 in real terms. Two years later it was $8. Fuel costs are a huge issue. The company's policy is to hedge to the extent it can on the financial markets the fuel burn it requires in order that we do not get surprises, up or down. As it is not our business to speculate in oil futures, we try to create stability by operating a full hedging policy. We have made the assumptions in our business plan as to what the long-term fuel price will be. The current fuel price is higher than our long-term assumption but our hedging assumption deals with this.

Deputy Eamon Ryan

Would many people be interested in taking a minority stake in the airline business when the majority ruling stake is held by a government? Would this attract the private sector or would the lack of control mitigate against people wanting to invest in this risky business?

Mr. Sharman

Until recently, the French Government owned the majority of Air France. The British Government went totally the other way and got out of the business in one go, floating all of British Airways in one day.

Deputy Eamon Ryan

Why did Air France change?

Mr. Sharman

: The French Government has been diluting its total shareholding in Air France for a number of years.

Deputy O. Mitchell

Did the Goldman Sachs report state there would be a considerable discount if a minority of shares were sold?

Mr. Sharman

Goldman Sachs advised that the price being paid by a private minority shareholder would be lower than the price paid by a majority shareholder. It could be right.

Chairman

That is for another day.

Deputy O. Mitchell

Has the Chairman decided what will happen?

Chairman

No.

Deputy O. Mitchell

Does he know something we do not?

Chairman

No. I am not a fortune teller.

Mr. Sharman

Deputy O'Flynn asked about operating to the United States from Cork, restoring flights to Milan, the logo and air bridges. I am undecided about whether we plan to fly to the United States from Cork once the bilateral agreement is changed. Within the guidelines, if it adds to the business, there would be no reason not to.

Deputy O’Flynn

Mr. Walsh, the outgoing CEO, committed himself to opening a transatlantic route from Cork Airport once the bilateral agreements were changed. Was Mr. Sharman aware of this?

Mr. Sharman

No. I can come back to the committee on that matter.

Deputy O’Flynn

Will the company look at new routes if the bilateral agreements are changed?

Mr. Sharman

Absolutely. I do not know why the Cork to Milan service was stopped.

Chairman

Mr. Sharman can reply directly to Deputy O'Flynn.

Mr. Sharman

As I said to Deputy Glennon, the Aer Lingus logo is one of the most valuable assets we have and there are plans to increase, particularly in Europe, the market knowledge of the brand. The shamrock is part of the marketing plans of the company.

I do not know what we have been doing with uniforms but the point was made about how professional Aer Lingus staff were and I absolutely agree. There will be no downgrading of their professionalism. I cannot comment, however, on the style of uniform.

Deputy O’Flynn

People believe Aer Lingus must maintain its professionalism and reputation.

Chairman

We all accept that.

Mr. Sharman

I share that vision of how our staff operate. They are very good.

Deputy O’Flynn

Is Aer Lingus one of the airlines that does not want to use the air bridges in Cork?

Mr. Sharman

That is the thin end of a large wedge, namely, the relationship between airlines and their host airports. This is only one of many areas being discussed. I do not know the answer to the question. I will come back to the Deputy on that.

Deputy O’Flynn

I am trying, through a process of elimination, to find out which airlines are responsible. I intend to find out.

Chairman

Is the Deputy seeking to find out which is responsible for his 'flu?

Deputy O’Flynn

I know who was responsible for that.

Deputy Glennon

A solicitor's letter will follow that.

Deputy O’Flynn

Does Mr. Sharman have the answer to that question?

Mr. Sharman

I do not know whether ours is the airline that objected.

Deputy O’Flynn

In Dublin, where there are air bridges, is there a shorter turnaround for aircraft on the stand than at the air bridge at the terminal? Is cost involved?

Mr. Sharman

I am guessing the turnaround would be quicker and the cost lower. I will come back to the Deputy with the answer.

Deputy O’Flynn

Mr. Sharman mentioned the importance of the staff, the company and the image. Does he agree that it is also important to have good customer satisfaction and the best of facilities for customers when travelling on the aircraft?

Mr. Sharman

Yes.

Deputy O’Flynn

Would walking from a hard shoulder in the cold and rain be his ideal way of presenting customer service?

Chairman

Mr. Sharman said that he feels the customer should be satisfied. If Deputy O'Flynn has a problem about the air bridges in Cork——

Mr. Sharman

Customer satisfaction is extremely important but we need to make sure the customer fully understands what he or she gets for his or her euro. The market shows that provided the customer understands, even if he or she is getting no service, then he or she is not disappointed. The best example is a successful new US carrier which has followed this line perfectly. There is no service on one of the aircraft, apart from water, but at the terminal it has a delicatessen with a sign, "Last food for 3,000 miles".

Chairman

Very good.

Mr. Sharman

Everybody knows what they are getting.

Deputy O’Flynn

Will Mr. Sharman come back to me with a specific answer on whether his airline told Cork Airport Authority, through the Dublin Airport Authority, that it does not want to use air bridges in Cork, for the reasons I have stated?

Mr. Sharman

I will do that.

Deputy Shortall

One of the difficulties arising from Mr. Sharman's last point is that people have got used to a high level of service from Aer Lingus. Therefore it is hard to accept the outgoing chief executive's statement that Aer Lingus attempted to bring costs down to the Ryanair level while maintaining a reasonable level of customer service. Given that Ryanair could not do that, it is hard to see that Aer Lingus could do it.

Is it wise to pursue the Ryanair no-frills model, or is there room in the Irish market for a low fares airline, without going down to the level of €40 per passenger? Perhaps a middle option is possible, such as the present Aer Lingus model which Irish customers like. I would welcome Mr. Sharman's view on whether the airline should go any further.

How good is staff morale now? The past 12 months have been a bruising period for staff. We have all paid tribute to them and their long tradition of service, but there is a problem with morale now. Does the board have any strategy to restore morale in the company and restore trust between management and staff or does it need to address that issue?

Deputy Glennon

Mr. Sharman may have omitted to respond to a question of mine connected with a topic raised by Deputies Shortall and O'Flynn. We are all very proud of the traditionally high levels of service in Aer Lingus. For many years it set a headline for most Irish companies. On one occasion when Mr. Sharman's predecessor addressed this committee, he referred to the three options in airline service: comfort, cheap and cheerful, or Michael O'Leary. He targeted the second option. Is that Mr. Sharman's approach too?

While I accept his assurances about his attitude to customer service, how does he relate that to the call centre which is anonymous and single track to the extent that if there is any glitch in the system the operators are unable to help? This flies in the face of Aer Lingus traditions.

Mr. Sharman

That is the same question. Our position is probably the second option, cheap and cheerful, but our competitors continue to reduce their fares. We do not aim to match those fares. Each of the carriers in the marketplace creates its own distinctions. The Ryanair brand is well-known and so is the Aer Lingus shamrock.

The issue for the company is to ensure that the branding and level of service is different from the other offerings in the market. For example, we fly to Heathrow which is worth a premium. Aer Lingus will pursue other services that can earn a premium. We are trying to find our own niche in this market. There are significant low cost, low fare trends and as the market settles down to those low fares it will be segmented. Easyjet created a very strong brand, which is different from ours and Ryanair's. The Iberia brand is very different from ours and it has a different offering.

The truth of this differentiation unfortunately is that in times of economic distress customers will go for the lowest fare, whatever that is. The situation the Deputies describe of people willing to pay a premium for service does not obtain throughout the marketplace. Some customers are willing to pay a premium. One key to the success of Aer Lingus will be to have a very smart commercial team that can take advantage of the brand with a bit of extra service and the professionalism of the staff.

Deputy Glennon

How does Mr. Sharman reconcile the call centre with the FLS? They seem to be polar opposites.

Mr. Sharman

The call centre?

Deputy Glennon

Yes, and the quality of service it provides. While the company is taking line maintenance back in-house, it is satisfied to sub-contract the reservations function externally.

Mr. Sharman

The day the Deputy mentioned was very unusual, when two long haul aircraft at the same airport had simultaneously to be taken out of service because of the incident. As we are still examining the reason the call centre was the way it was, I do not have an answer to that question. As 85% of bookings were made on-line, that is the means we ought to be using to communicate with those customers. This clearly did not happen as there have been complaints which need to be addressed.

Deputy Glennon

I will be interested in the outcome of the investigation.

Deputy Shortall

What about staff morale?

Mr. Sharman

The Deputy used two words in her question, "morale" and "trust". "Trust" is an extremely important word in this instance. It is important that staff throughout the company have trust in its institutions, starting with the board and working down through the various committees which manage the company. In the weeks since our colleagues resigned I hope I have maintained the trust the staff have in these institutions. I have deliberately communicated the results of board meetings, including extraordinary meetings. I am encouraging the executive to be open at all times with the staff to address this issue.

I do not agree with some of the press claims that morale is at rock bottom throughout the airline. One cannot go through these processes without the morale issue being foremost in all our minds. As a board, we will address what we do if it does fall. However, I do not accept that it has. Going into this process we knew the changes would be difficult.

Deputy Shortall

Uncertainty will remain for the staff. This issue needs to be clarified for them at an early stage. However, this has not happened as far as I know.

Mr. Sharman

We are engaged with the industrial relations machinery. Approximately 700 staff have applied to take either the early retirement or voluntary severance package. However, we have been unable to discuss the reasons they want to leave the airline because we have not reached finalisation with the industrial relations machinery, the trade unions as to the work practice changes required and the other issues implicit in that process. I sympathise with the people concerned. They have indicated they want to accept the offer, yet we are not in a position to allow them to accept it because we have not finished negotiating the changes. That is why Mr. Walsh welcomed the intervention of the Labour Court in consolidating these issues.

When I speak about different issues, it must be remembered that they are all interrelated and fundamentally about changes in work practices. The one practice that hit the headlines is outsourcing. They are all inherent in the business plan. The Labour Court has recognised that we should take them together in co-operation with the trade unions and see what changes can be made in discussions. However, we must still go through this process. Until then, the approximately 800 people who have indicated that they want to leave the company cannot talk to us.

Deputy Shortall

What is the timescale for the Labour Court recommendations?

Mr. Sharman

I hope it will Tuesday for the first one. We have been told it is a four week process which we find extensive as we are behindhand. The company is trying to co-operate with this process as quickly as possible, largely for the morale issue with the staff with whom we cannot talk.

Chairman

I thank Mr. Sharman and Mr. O'Sullivan for the way in which they have been forthright. They have enlightened the committee on the direction Aer Lingus is taking. I hope they will continue to give the company the benefit of their services for the long term.

The joint committee adjourned at 5.15 p.m. until 1.30 p.m. on Tuesday, 1 February 2005.