JOINT COMMITTEE ON TRANSPORT debate -
Wednesday, 30 Nov 2005

Aer Lingus: Presentation.

Chairman

Item No. 6 is a discussion on future developments in Aer Lingus with Mr. Dermot Mannion, chief executive of Aer Lingus. Mr. Mannion is accompanied by Mr. Greg O'Sullivan, company secretary.

I draw attention to the fact that while members of the committee have absolute privilege, this privilege does not apply to witnesses appearing before the committee. Members are also reminded of 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 or in such a way as to make him or her identifiable.

I propose that Mr. Mannion make a short presentation that will be followed by a question and answer session. I welcome Mr. Mannion on his first visit to the committee since becoming chief executive of Aer Lingus. We appreciate his coming before us to outline the future of Aer Lingus.

Mr. Dermot Mannion

I thank the Chairman for the opportunity to address the committee. It is now just 16 weeks since I took the job at Aer Lingus, something I did with a real sense of conviction in terms of what can be achieved. The reality of the job has in no way diminished that conviction. There are serious challenges but it is also a time of opportunity. I remain as positive today as I was on 8 August.

I realise that members have taken an active interest in Aer Lingus in the past 18 months and are well versed in all of the key issues faced by the company. I do not, therefore, wish to delay by covering old ground. I do, however, wish to offer an overview or make some introductory comments on progress in a number of key areas for Aer Lingus. I also wish to comment on the immediate priorities from the company's perspective. Specifically, I wish to refer to the staff of Aer Lingus, the 2004 business plan, our position and performance in 2005, privatisation, the pensions issue and responsibility and good governance.

It is important that I acknowledge the good work and immense efforts made by everybody in Aer Lingus to continually improve the company and its business. My predecessor and his team did an exceptional job shaping a sustainable commercial base for the business. Since I joined, I have found a team — staff and management alike — that is exceptionally committed to running the airline.

I am acutely conscious of the common perceptions that abound in respect of staff relations in Aer Lingus. The committee has voiced its concerns in that regard. I can only speak of my personal commitment and the leadership approach I have adopted since my arrival, which I will maintain. My approach recognises the legitimate role and voice of all in Aer Lingus and I will act accordingly. My focus is on making progress, building a stronger, sustainable Aer Lingus, with more and better employment opportunities, and providing an improved service and contribution to Irish consumers, the country and its economy. I sincerely believe all with an interest in the airline and its affairs will support that objective. We must be seen to set and maintain high standards in moving on from the past and planning for the future.

Since mid-2004, the company has worked through the implementation of a business plan, designed to underpin its competitiveness for the future. Much comment has been made, particularly in the media, as to whether that plan is, or can be, completed or indeed, whether it should be. Let me be clear. The plan was essential and its benefits are already felt. Many of the efficiencies set out in it were agreed and achieved while others are still under discussion. In some cases, it was possible to achieve the efficiencies required by means other than those originally identified, mainly because either growth in the business or a flexibility in approach opened the door to progressing differently.

I am particularly encouraged by the progress we achieved in partnership with staff and their union representatives in the implementation of the fly anywhere agreement for cabin crew. We are also making progress in identifying and implementing cost saving alternatives to outsourcing in a number of areas across the organisation. The company tabled a reward proposal to Irish based non-pilot staff in this respect and it is important this final phase of the business plan process is completed on a timely basis. Clearly, Aer Lingus now needs to move on to the next stage of its development with the creation and implementation of new plans for the future.

Regarding the position of Aer Lingus and its performance in 2005, we can move on to that next stage with a great deal of confidence. Notwithstanding the vagaries of the market, the business is doing well. We have a clear strategy that the market both understands and likes. The performance in 2005 to date has been better than might have been envisaged a year ago. We had to make adjustments, competition is everywhere and is fierce in many cases.

Fuel costs are a concern and change is constant, but Aer Lingus continues to do well. During this year, we successfully delivered the strategy for short-haul expansion set out 16 months ago. Passenger numbers are up by 33% on continental Europe, with 21 extra routes added. In addition, we announced our first long-haul flight eastwards which was well received both internally and externally. From a business perspective, we have many reasons to be confident but nothing about which to be complacent. We must stay lean and flexible while seeking every opportunity to grow.

Regarding privatisation, securing new investment is critical to being ready for those opportunities. I stated before, and it is important to state clearly again, that I did not seek any conditions in respect of the ownership or investment issue before taking up this job. However, I am equally clear, and I understand committee members acknowledged in the past, that new equity is essential.

It is a matter of pragmatism. We have a fleet of 27 short-haul and seven long-haul aircraft. We are close to maximising the use of that fleet. We cannot make it do more. The demand of the market for increased and varied short-haul and long-haul options continues to grow. We have just announced our first eastwards long-haul destination and see significant commercial potential in a number of others in the same vein. The market, consumers demand it.

In addition, the impending EU-US open skies deal also offers further opportunities to North America. To turn these business opportunities into growth for us requires new equity. In that context, I welcome the appointment by the Minister of Transport of UBS and AIB as financial advisers on the scope and timing of the proposed Aer Lingus transaction. For our part, Aer Lingus has also appointed Merrion Capital and Goldman Sachs as our advisers to assist in the process and work is well underway on this critical phase of the assignment.

Aside from the future impact of the pensions issue on the operation of the airline, the process around the Government's investment decision has thrown up a number of other important questions. The airport pension plan exercises many minds. It is a complex issue given that Aer Lingus, DAA and SR Technics are part of one scheme. While, admittedly, this challenging issue has many competing viewpoints, I assure the committee that Aer Lingus is actively involved in a process of engagement with the Departments of Transport and Finance, Dublin Airport Authority, the trade unions, the Retired Aviation Staff Association, RASA, and the Government's advisers with a view to arriving at a final resolution. I believe this is the best and most appropriate forum in which to resolve the outstanding problems on the pensions issue, and we are giving our full priority to this matter.

I will make some final comments on responsibility. My colleagues and I are under no illusions about what is required to maintain Aer Lingus as a vibrant company that performs well as a business, provides a quality service to customers, is a good employer and a good neighbour. However, that responsibility is not ours alone. We want and need input and positive contributions from a wider family of stakeholders. This requires pragmatic decision-making and clear thinking. We believe the benefit will deliver in abundance for employees, customers and the country at large. We look forward to the support of this committee in achieving that objective. I thank the Chairman and members of the committee for their kind attention.

Chairman

I thank Mr. Mannion for his presentation. I wish to put some questions before I hand it over to members. With regard to the open skies policy, does Mr. Mannion envisage major expansion vis-à-vis Aer Lingus services to the US? In that context, does he see the future of the Shannon stop-over as a threat or an asset for Aer Lingus? Further to that, Mr. Mannion stated Aer Lingus has 27 short-haul and seven long-haul aircraft, and that it has reached capacity. What fleet does he envisage Aer Lingus will have once it moves into long haul and has more destinations, particularly with the open skies policy?

Mr. Mannion

Perhaps I might take the Shannon question first. We regard Shannon as an asset. In the immediate aftermath of the announcement on the phasing out of the Shannon stop-over, I made the comment, which I am happy to repeat here, that Aer Lingus fully expects to continue to operate at least 400,000 seats a year through Shannon in an open skies environment. We do not see any potential for conflict. In fact, quite the opposite, we see our business growing out of various points in Ireland to the United States.

On the question on aircraft, we are working through a long-term planning process which will result in a significant increase in the number of long-haul and short-haul aircraft required by Aer Lingus. I hope the details of that will be released in due course. Suffice it to say for today, it is a significant expansion in our operation. The way the new open skies policy will apply to Ireland and the US is that from November 2006 we will have the ability to nominate three additional points in the US and I assure the committee that Aer Lingus is taking steps already to secure those positions.

Deputy O. Mitchell

I welcome Mr. Mannion. We waited some time to allow him to settle into his position before calling him to appear before the committee, but we are pleased he could attend today. I have numerous questions, but I do not want to take over the meeting. Therefore, I will attempt to go through the list of items covered by Mr. Mannion in his presentation.

Mr. Mannion referred to the staff of Aer Lingus. During the interregnum, before his arrival at Aer Lingus and following the departure of the previous management team, the restructuring of the company was effectively put on hold. Can Mr. Mannion give us an indication of the current status of the restructuring programme? We have heard reports that contract staff are being employed, yet there seem to be a good deal of redundancies that were offered to staff, but not taken up by them, because of the interregnum. I would welcome Mr. Mannion's views on the impact the delay in restructuring has had on the sale value of the company, if any.

With regard to the business plan, Mr. Mannion has stated that he is making progress on a fly anywhere agreement. Does the company have a fly anywhere agreement now and if not, does Mr. Mannion expect to have one in place in time to capitalise on the additional routes that may be available when the open skies policy is finalised?

I also seek clarification on whether the plan to outsource services for the airline, which was part of the original business plan, has now been dropped. If so, has it been dropped permanently? Several Ministers have announced the dropping of outsourcing plans, for example, the Minister of Transport will not now be outsourcing the driver testing service.

Mr. Mannion spoke of the need for the company to be lean and flexible. I cannot remember the exact figures for this year's profit level, but I know that Aer Lingus made €100 million last year and that profits this year are expected to be considerably less than that, up to 50% less, I believe. To what does Mr. Mannion attribute the halving of profit levels?

Clearly Aer Lingus needs new equity and additional aeroplanes are urgently required. When the chairman of Aer Lingus, Mr. Sharman, appeared before this committee, approximately six months ago, he said at that point that it was critical that the Government would make a decision on where the equity would be generated. At that point, a decision had not been made. In terms of purchasing both replacement and additional aircraft, can Mr. Mannion confirm the deadline for completing such purchases? I am unsure whether it was Mr. Mannion or Mr. Sharman who stated that the third quarter of 2006 is a critical period. Is that the deadline for finalising plans for financing the new long-haul aircraft?

Open skies promises enormous opportunities for everybody, not only for Ireland but for airlines and airports all over Europe. Is it a concern for Mr. Mannion that an open skies agreement may be reached with other airlines in other countries prior to April 2008, when the Irish agreement comes fully into force? Irish airlines will have the opportunity to fly to three additional destinations in the United States by November 2006, which is a partial open skies arrangement. Is it essential that Aer Lingus has new aircraft by that time and if so, is it also essential that the sale of the company takes place by then? Has the Minister of Transport made a commitment that the sale will take place in the third quarter of 2006?

Chairman

Would Mr. Mannion like to answer Deputy Olivia Mitchell's questions now or would he prefer to wait until Deputy Shortall has posed some questions and then answer everything at once?

Mr. Mannion

I am happy to respond to Deputy Olivia Mitchell now. The restructuring of the organisation is linked to the completion of the business plan but it is not true to say that it stalled in the interregnum period. I mentioned earlier that we are close to a completion of the 2004 business plan and all of the issues that were set out therein. I must pay tribute to the Chairman, Mr. John Sharman and the interim management team for their significant achievements in that area in the period between the departure of the previous chief executive and his colleagues and my arrival in August of this year.

We have now signed, or initialled, a fly anywhere agreement with cabin crews. It is conditional on, as are other elements of the business plan, a final reward proposal from the company, which has recently been made to the unions. The unions are required to ballot on that proposal in due course, as an entire package, and when they do so, the fly anywhere agreement and all other aspects of the business plan will be finally agreed and cast in stone. As part of the process of finalising the business plan, we have achieved outsourcing in some areas. In other areas, with the co-operation of the unions, we are developing work-around solutions. At the end of that process, if we feel we have achieved significant productivity benefits, of which I am confident, then outsourcing will be taken off the table in those areas and we will move on to finalise the business plan.

With regard to the organisation remaining lean and flexible, Aer Lingus is in very good shape. While it is true that the operating profit for 2004 was approximately €100 million and it will be much lower this year, one must bear in mind that fuel cost €50 million more in 2005 than it did in 2004. If one examines our business plan for 2006, fuel will cost exactly double what was expected when the original business plan was drawn up. Therefore, in that kind of climate and at a time when many other airlines are suffering, Aer Lingus is doing very well by industry standards.

With regard to privatisation, it has been well advertised that the phase 1 process is expected to be complete by the end of December. A process of engagement between the Government advisers and others is ongoing to identify the form and content in which phase 2, the privatisation itself, will proceed. A decision is pending and is promised before the end of this year, which we welcome.

It is true that an open skies policy can be a double-edged sword. The good news for Aer Lingus is that it provides us with greater access to the United States, but the corollary is that it provides greater access to Ireland for all US carriers. We welcome that kind of competition. Aer Lingus has demonstrated that it is well able to deal with the best competitors in the industry. From the point of view of the Irish economy and Irish consumers, open skies is positive. Consumers will see more competition, greater frequency of flights, a better level of service, all of which will be to their benefit. Aer Lingus is not afraid of competition. It has not been afraid in the past and I am confident that we can meet the challenge posed by the entry of additional US carriers into the Irish market.

Deputy O. Mitchell

I would like two issues clarified. Mr. Mannion has said that outsourcing is off the table or will be if a deal is reached with unions that will bring about the required efficiencies within the airline. Does that mean that the redundancies that were offered previously — approximately 1,500 if I remember correctly — will not be completed if agreement is reached on outsourcing? Perhaps Mr. Mannion misunderstood my second question on the open skies issue. Are we being disadvantaged by a lead time that may leave us with an open skies situation after everybody else in Europe? Other airlines and airports may have already done deals resulting in disadvantage to Ireland. Is Aer Lingus concerned about that?

Mr. Mannion

Approximately 700 staff have left as a result of the voluntary redundancy programme, which is now virtually closed. I am committed to using the remaining staff to the best possible effect to grow the airline into the future.

Deputy O. Mitchell

Does that mean half the people who sought redundancy will not receive it and that half the people from whom Aer Lingus sought redundancy will not take it?

Mr. Mannion

The original figure of 1,300 to which the Deputy referred was a target as a result of the voluntary redundancy programme but we have moved on from that. Some 700 have left, agreed by all sides. The remaining people are keen to remain and be part of the Aer Lingus story in the future. I am not worried about the delay until November 2006 in implementing open skies because we need time to tool up and get aircraft. November is an achievable timescale and it would be difficult to do it any sooner.

Deputy O. Mitchell

Is it not true that other countries do not need that time because they have the aeroplanes and are in a position to avail of open skies?

Mr. Mannion

To do anything even for the summer season of 2006 would be virtually impossible. We have already published our schedule. In theory somebody else could announce something in summer 2006 but it would be tight. Realistically the winter timetable commencing in October-November 2006 is the earliest that most airlines will be able to launch a suitable response to open skies.

Deputy Shortall

I welcome Mr. Mannion and wish him well in his challenging new position. I welcome the change in tone from his predecessor in today's presentation and in recent communications with staff. Mr Mannion has talked about his concern over so called "environmental push" factors, acknowledges the anxiety they caused to staff and gives his personal assurance that he will deal with the issues of morale and partnership. That is welcome given the industrial relations difficulties that were provoked in the company over the past year. How does Mr. Mannion intend to restore staff confidence and morale that has been damaged by attempts to implement the so called business plan?

I note Mr. Mannion's comments on outsourcing and I welcome that the unions have been proved correct that savings could be made through efficiencies rather than through the crude, heavy-handed approach of outsourcing what had been good, secure jobs particularly for people of north Dublin. I welcome that development and look forward to the resolution of that issue. Mr.Mannion's initial proposal was to cut 1,300 jobs and he has reached 700. Does he expect that will be the end and can he explain how management talked about significant expansion plans and a bright future while simultaneously proposing drastic staff cutbacks? Could Mr. Mannion speak about the practice of making staff redundant and then bringing them back on temporary contracts to do the same work? How many people are in that position and does it make sense?

Mr. Mannion says we all agree that equity is essential. That is a truism, and nobody will dispute it but while it is used as a justification for privatising the company, no case is being put for privatisation. If additional equity is required, as we accept it is, there are various ways of doing it. For example, the Irish Congress of Trade Unions has proposed a holding company model. There is a possibility of pension companies being invested in the company. If investment in Aer Lingus is a sound investment for the private sector it is also a good investment for the public sector.

Has Mr. Mannion reached a position where he can forecast the company's funding requirements over the next five to ten years? Various figures have been bandied about but we do not have any business case for the provision of additional funding, which is extraordinary. I would expect that management would be able to estimate equity requirements based on expansion plans, the cost of additional aircraft and the options of raising loans, etc. It is easy to say the company must be privatised to provide equity but many would contest that view. Let us have more details, find out what is needed and look at the options for raising it.

There has been an indication of movement on the pensions issue. What is the extent of Mr. Mannion's negotiations with the Ministers for Finance and Transport? Does he expect that the Dublin Airport Authority will establish its own pension scheme and that the current one will be split up? What are the advantages and disadvantages of that? Is he hopeful that the shortfall of the pension scheme's funding will be addressed in the context of the changed ownership and does he believe there is a commitment to make up that shortfall?

Mr. Mannion

I will take the morale issue first. I will read two paragraphs from a staff notice we issued yesterday which states:

I feel now is an appropriate time for me to add my comments on the matters raised on the so called "push factors" document and subsequent media reports. The chairman in his letter to staff of 21 July expressed regret for any offence caused by the document. I also acknowledge the feelings of concern and anxiety which this document has caused our staff and recognise the need for me to continue to build confidence across the organisation.

I have personally overseen the relaunch of the respect and dignity in the workplace policy and have appointed a policy monitor who is reporting directly to me on the implementation of the policy. A training programme is currently being rolled out for all staff with supervisory responsibility as part of the relaunch. This policy has also been reissued to all Aer Lingus employees to ensure maximum awareness of the importance of respect and dignity in the workplace.

The Deputy asked about staff who have left under the voluntary severance scheme being brought back on contract. Our policy is to avoid this and I understand it has happened in only a very few situations. It is not desirable nor something we encourage and I do not see it becoming a significant issue in the future.

As part of our long term planning process we have identified an equity requirement figure for the purposes of privatisation, which is being reviewed by our advisers at the moment. It will shortly be discussed with the Government advisers. We expect to put it to Government before the end of this year, after which it will enter the public domain.

The DAA will appear here shortly and will give its own perspective on pensions. It is important to get the message across today that there is active engagement between all the parties I mentioned earlier. Discussions are at a sensitive stage but I am confident we will reach a conclusion soon, which is important. I hope we come up with a solution in the best interests of all parties.

Deputy Glennon

I welcome Mr. O'Sullivan and in particular Mr. Mannion on his first appearance before the committee. As usual in these circumstances previous questioners have raised most of the issues but I will ask a couple of supplementary questions. I will go through Mr.Mannion's statement.

First, under the heading "People in Aer Lingus" the last line states: "We must be seen to set and maintain high standards in moving on from the past and planning for the future". In this regard I welcome yesterday's notice, which Mr. Mannion has just read to us, because it appears to indicate an intention to move on and distance the new regime from the HR regime of old.

I note Mr. Mannion's comment on the replacement of 700 permanent staff to the effect that the number of retired employees brought back as temporary replacements is quite small. I am informed that there have been approximately 500 temporary replacements since the 700 lay-offs, which strikes me as high. It means that approximately 70% of those jobs have been refilled. In addition I understand that in one department an individual has been re-employed on contract to perform his former function and has brought approximately eight former employees back with him to do the jobs they were doing before they took the package.

On the business plan, I have a recurring question on the subject of Internet booking for the chief executives of Aer Lingus when they come before this committee. What percentage of sales are made through the Internet at www.aerlingus.com? Linked to that is the fate of the shamrock in the company’s marketing strategy. I refer in particular to the regard in which the logo is held by staff, especially the longer serving staff. On his several appearances before this committee Mr. Mannion’s predecessor paid homage to the shamrock while at the same time it was being sidelined in a deliberate and calculated manner. In one instance a presentation to this committee ran to some 16 pages on which www.aerlingus.com was printed at every available opportunity without one appearance of the shamrock, yet we were told the shamrock still held pride of place in all future marketing strategy. I flew home from Edinburgh yesterday with colleagues after a parliamentary meeting and noted at the check-in desk that www.aerlingus.com was everywhere but there was no sign of the shamrock. Mr. Mannion has an opportunity at this, his first appearance before the committee, to tell us the real position of the shamrock going forward, particularly in the context of the success of www.aerlingus.com.

I note the comments that passenger numbers are up by 33% in respect of continental Europe, with 21 extra routes added. How is that figure calculated? Is it last year's figure for continental Europe or is it a projection for this year? I ask that in the context of the 21 extra routes. I would also be interested in the figures for the UK and the Atlantic. I also note comments on the favourable reception for the Dubai route, both internally and externally, but what are the figures for forward bookings? I believe the route does not commence until April and understand that bookings have been disappointing.

The company's written submission describes the process of engagement on the subject of pensions with the Departments of Transport and Finance, the DAA, trade unions, the Retired Aviation Staff Association and the Government's advisers as "intensive" but Mr. Mannion did not use that word in his verbal submission. I hope that is not ominous and would welcome a clearer indication of the present state of those negotiations than furnished to an earlier questioner. My information from the unions is that talks with them have only been exploratory in nature and that there is a considerable way to go.

Deputy P. Power

I welcome Mr. Mannion and wish him well in the job in the future. I wish to discuss the case for privatisation. Deputy Shortall asked a number of questions on that subject which were not fully addressed.

Let us assume, as we all wish, the company becomes more profitable in years to come in this ever more competitive environment. Has Mr. Mannion looked at other alternatives for raising capital and finance to fund the fleet expansion which he mentioned or is he focused on privatisation and an initial public offering? If the company is profitable it should be able to raise funds easily on international markets, on bond markets and by the use of long-term leasing facilities. My concern is that the remit of UBS and AIB is solely to prepare and make the case for privatisation. Does the witness believe that when this exercise is being undertaken, it would be worthwhile if possible alternatives to an initial public offering were examined at least, to compare the relative merits of each funding route?

Deputy O. Mitchell

The sale of Aer Lingus is a matter for shareholders rather than the chief executive of the company, and that decision has been made by the Government of which the Deputy is a member.

Deputy P. Power

The question is directed towards Mr. Mannion, and as he is the chief executive of the company, he surely has a view on the best way forward. He is proposing the vast fleet expansion, and he surely has an opinion on the best way to finance this, as there are a number of alternatives. I would like Mr. Mannion's view on the matter and I believe it a reasonable question.

Deputy Shortall

The Government has taken a position on it.

Deputy O. Mitchell

The Government made a decision.

Chairman

Deputy Peter Power did not interfere in any questions asked by the Deputy so he is entitled to ask questions.

Deputy O. Mitchell

Relevant questions.

Chairman

It is up to Mr. Mannion if he does not wish to comment. The question rests with him.

Deputy P. Power

Mr. Mannion presided over a fairly rapid expansion of another airline and he is in a decent position to give a view on how he funded such an expansion. Perhaps Deputy Olivia Mitchell is not aware of the fact.

Deputy Shortall

That is true, but the Government has pre-empted this decision.

Deputy P. Power

My second question to Mr. Mannion relates to the pensions issue and comments already made on the matter. Is he aware that a number of former employees and current pensioners of Aer Lingus are considering initiating legal action with regard to pension entitlements? They have already served notice on the company to that effect.

Senator Dooley and I represent areas close to Shannon Airport and I am interested in the company's commitment to the airport and the assertion that the 400,000 seats currently being put through Shannon on Aer Lingus flights will be maintained. With regard to the three new points in the United States, is it the intention of Aer Lingus to site those from Shannon or Dublin?

On the issue of privatisation, does the witness have a view on possible conditions to such a deal that would protect the national strategic interests on which we all agree? These interests include the Heathrow Airport slots, the headquarters of the airline and related issues. We saw what happened with Telecom Éireann, Eircom and Irish Ferries if full ownership of a company goes outside Irish hands.

Mr. Mannion

I will deal with Deputy Glennon's questions first. With regard to pension negotiations, I have personally been involved in at least ten meetings regarding the process, all of them quite lengthy. I have no problem agreeing with the term "intensive", and it is an intensive process with which we are actively engaged.

The launch of the Dubai route is still some way off as it does not begin until 28 March 2006. I take a view opposite to that of the Deputy, and the level of bookings so far is encouraging. Our people in www.aerlingus.com launched the selling capability very quickly on both sides of the route, i.e. Irish passengers can purchase tickets here and passengers in the UAE and beyond can buy tickets over there. We are very encouraged by the way the plan is proceeding.

With regard to traffic volumes and numbers, the figures on continental Europe are in comparison with last year. That is real growth year on year. There are particular challenges on the London and UK routes, as we all know. The UK market is extremely competitive, and London has suffered because of the bombings earlier this year. London and UK numbers are about the same level as last year. As there has been no increase in capacity for transatlantic flights, passenger numbers are approximately the same.

On the shamrock issue, one of the positive challenges we have as an organisation is that www.aerlingus.com has been such an outstanding selling vehicle success, particularly in short-haul markets across Europe. It is becoming increasingly well recognised, not just in Ireland but in all the European markets we serve. On long-haul routes, and especially in the United States, it is a different matter. The traditional emblem of the shamrock is and will remain the best known emblem in those kinds of markets. My view is the shamrock will be protected and it will continue to be seen across the network. However, there is no shame or fault in promoting www.aerlingus.com across Europe, which we are doing. This encourages new passengers to use the selling mechanism, which is very cost-effective. The shamrock is in safe hands.

Deputy O. Mitchell

It is a protected species.

Mr. Mannion

Deputy Glennon referred to a case of re-employment on a temporary basis of one staff member who has brought eight others with him. I am not aware of the specifics of the case. My guess is the arrangement is short-term. I stated clearly to the other Deputy that it is not a matter of company policy to re-employ people who were already employed in the organisation and have taken voluntary redundancy.

The 700 permanent staff who have departed along with the 300 extra fixed-term staff were mentioned. From time to time and especially in the summer we use seasonal staff. Again there is no shame in this. When the Aer Lingus figures for 2005 are released early next year, it will be seen that the full-time equivalent staff number, a measure including full-time permanent and fixed-term contracts, will show a substantial reduction over the previous year.

I will move now to the questions from Deputy Peter Power. I am not specifically aware of any impending legal action by pensioners or anybody representing that group. As far as I am aware Aer Lingus has not been put on official notice of it. However, the Retired Aviation Staff Association is involved in the negotiation process I have mentioned. I repeat that we are confident a resolution can be reached on the problem.

With regard to privatisation and my views on raising equity, I am glad others in the room have pointed out that it is a matter of official Government policy that the privatisation should proceed. I support privatisation. I estimate that Aer Lingus requires €2 billion of additional aircraft. At a time when the company's equity base is €300 million, one can quickly realise that it is not possible to find the difference between the two figures in the debt markets. Some form of equity from outside is required to secure the long-term investment.

Deputy Shortall

The €2 billion is required over what period of time?

Mr. Mannion

The period will be between now and 2010.

Deputy S. Ryan

How many aircraft will be purchased?

Chairman

The witness will answer the questions of the committee first.

Deputy S. Ryan

It is a relevant question.

Chairman

The Deputy may put the question on his turn.

Mr. Mannion

With regard to Deputy Peter Power's question regarding the three extra points to which we have been given the rights in the United States, it is too early to say from where these will be sited. We are entering an intensive session in the company in early December to trace out a modus operandi as to what we hope to achieve from November 2006 onwards. The story has been complicated by the fact that it is difficult to find additional aircraft in the market. We are trying to find aircraft and subject to that we will make a decision as soon as possible on those three points and how we will operate to them.

On matters relating to the national strategic interests, the Government advisers — they have consulted with our own advisers on the subject — are involved in identifying precisely those issues. I expect that matter will be presented to the Government shortly. There has been a debate on national strategic issues. It is coming close to a conclusion and recommendations will be forthcoming to the Government.

Senator Dooley

I too welcome the delegation from Aer Lingus and, in particular, Mr. Mannion, as this is his first opportunity to address the joint committee. I recognise the conciliatory approach he has adopted since taking over the position and the language he has used today and in the various interviews he has given. It appears he is making an effort to work in a cohesive way with the workers and all the stakeholders he has mentioned. He has succeeded in reintroducing party politics into the joint committee. The joint committee was at one under the previous management in terms of our opposition to some of its proposals. Perhaps he is starting off on a good note and getting politics back into the committee.

I apologise that I had to leave for a vote and some of the issues I am about to raise may have been addressed. If that is the case, perhaps Mr. Mannion would say so and I can get the information from the record. The first is the HR strategy — an element of which formed part of the business plan — and environmental factors, both of which were addressed in a previous memo. Some very real concerns were expressed to us by various union representatives. Perhaps Mr. Mannion would expand further on that issue.

The major concern of the joint committee at the time was to ensure that kind of strategy would not continue. We were assured it had never taken place. However, evidence given to the joint committee by various union representatives appeared to suggest that while it may not have been documented in the past it was very much part of the procedures that were in place. I am not asking Mr. Mannion to address historical issues but perhaps he would give his views on that matter.

The issue of pensions, on which we have had various submissions, has exercised us in recent times. The two elements we have seen are the future viability of the pension fund in line with the reduction in those contributing and the fact that the pensions of many of those who took early retirement under some of the redundancy plans have fallen behind in terms of growth because they were tracked only to the CPI and not to wage inflation. Persons who retired on a reasonably good pension find that over a sustained period their take on a weekly or monthly basis has fallen very much behind the cost of living, given that wages have increased. Has that issue been addressed with a view to bringing the pensions into line with other pensions? When the Pensions Board came before the joint committee it indicated there are a number of pensions in the public sector that are not linked to inflation in line with wage increases but those are in a minority. The pensioners have an entitlement to be treated in the same way as the vast majority of other public sector workers.

There is also the issue of open skies and its impact on the mid-west and the west, particularly County Clare, my native county. I am sure Senator Daly who is present will have a contribution to make on this issue. There is real concern, not in the short term but in the medium to long term, with the advent of open skies. Given that there is no necessity for Aer Lingus aeroplanes or any airline to land at Shannon, can a commitment be made to the region and, if so, for how long? We have not seen any commitment from Aer Lingus in respect of the short-haul expansion. That may be difficult because Ryanair has already got a foothold but it was open toAer Lingus for a while. I would appreciate Mr.Mannion's comments on that issue and also on a potential service between Dublin and Shannon which was provided in the past.

There is a suggestion that Shannon is an ideal base as a cargo hub between Europe and the US. Many studies have been done on that issue. I would be glad to hear Mr. Mannion's views on the matter.

The Minister for Transport together with the Minister for Enterprise, Trade and Employment and the Minister for Arts, Sport and Tourism have indicated they will prepare a tourism and economic development plan to deal with the fall-out from open skies. What would the delegation like to see in that plan and what would make it attractive? Recognising that airlines can no longer be forced to land in Shannon, what do airlines require to encourage them to provide a year-round service? It is clear there is a tourism requirement for nine or ten months of the year. Given that Shannon has the largest industrial estate outside of Dublin and that many of the companies located there are of American origin, it is believed that for the continued investment in and growth of those companies a daily direct service to the east coast of the US is vital. What do we need to do to ensure that service is retained?

Senator Morrissey

I offer my hearty congratulations to Mr. Mannion on his appointment. He brings vast experience to his post. I wish to raise a few questions I would have raised with his predecessor.

On the issue of costs per passenger, how are such costs benchmarked with that of his competitors? Aer Lingus has 21 new routes. What is the percentage load factor on those routes? The use of www.aerlingus.com for bookings is the way of the future and the way many book their holidays. Has it grown in line with or exceeded expectations?

When Mr. Mannion's predecessor came before the joint committee, according to media comment the previous investment figure would have been approximately €1 billion. Some would have considered €1 billion an ambitious target. Today, for the first time, Mr. Mannion mentioned a figure of €2 billion. Is this from the same business plan or does it arise from the possibility of greater long-haul routes than might have been envisaged previously?

On the issue of pensions, Mr. Mannion used words such as "active engagement" and said he expected a positive conclusion. Given that when the Dublin Airport Authority will be brought into the equation there will be fewer people in the group in terms of contributing to the pensions scheme and that the number of pensioners on the other side will obviously increase, this will present a huge liability in the event of a sale. In view of reporting and auditing requirements will this liability be shown in the company's profit and loss accounts for next year? I understand there is a requirement to show it.

On the thorny question of privatisation, given that the business plan of Mr. Mannion's predecessor is being implemented by Mr. Mannion and that it is showing positive results in respect of the number of routes and passenger growth, are all the stakeholders at one on the future investment options for Aer Lingus, which is one of privatisation and getting outside equity?

Deputy Connaughton

I welcome Mr. Mannion who comes from the right part of the country and with the best possible credentials.

Mr. Mannion

Thank you.

Chairman

They do not know what the Deputy and I know.

Deputy Connaughton

They know it now.

Deputy S. Ryan

We will not comment.

Deputy Connaughton

I do not want to go over the ground covered but I wish to raise a number of matters and to address what Senator Dooley said. I was pleased to hear Mr. Mannion say that he is doing his best to build confidence among the staff. I will never forget the day we debated the push factors with the various union representatives. If ever Aer Lingus had a PR disaster, it occurred around that time. I am not taking sides as to who was right or who was wrong because I was not there and I am not involved in this area. Irrespective of how Mr. Mannion manages the company under his watch, he should ensure that the company is never at that stage again. If I was a staff member and if what we were told was true — I have no reason not to believe it was — there seemed to be a regime in place at that time which one would not expect to be in place today.

A robust defence was made on a previous occasion by Mr. Mannion's predecessor. Irrespective of whether that situation was right or wrong, it is not a place in which Aer Lingus as a fine company should find itself again. I am delighted with Mr. Mannion's comments. I have been led to believe that confidence is beginning to be restored among the staff and that is good for everybody concerned.

Regarding the investment required to be made in the company, Mr. Mannion referred to the need to obtain €2 billion from somewhere. I have no idea, nor might Mr. Mannion, from where that amount could be obtained. Will Mr. Mannion indicate for exactly what purpose that amount is required? I am aware money is required to purchase aeroplanes. I do not know the cost of an aeroplane. Will Mr. Mannion indicate the cost in terms of the time it takes to receive delivery of an aeroplane from when a decision is made to purchase it? What is the timetable for such delivery? What number of aeroplanes would the company would like to purchase and what is the shortest time it takes to obtain delivery of that type of equipment?

Coming from the west, I and the people in that region have always been proud of the role Shannon Airport has played. There has been a perception that Aer Lingus is not fully committed to Shannon Airport. I am not sure if that perception is right. In good and bad times, Dublin Airport was always the main focus and Shannon Airport was viewed as a country cousin or another distant relation and to be treated as such.

Aer Lingus is a fine company and I hope that will continue to be the case. Will Mr. Mannion indicate what commitment the company has to Shannon Airport? What are its plans in this regard? Leaving aside the other carriers, Aer Lingus's commitment to the airport will be important for its future.

It has been represented to me on several occasions in the past 12 months that in terms of an open skies policy, 400,000 seats should be maintained at Shannon Airport. I do not know whether that is right or wrong. It has also been represented to me that in an open skies environment, the number of seats might rise to 600,000. With Aer Lingus being one of the main players, Mr. Mannion might comment on that possibility and from where the extra 200,000 seats are likely to come.

Mr. Mannion

I will deal with Senator Dooley's questions first. I draw the Senator's attention to two paragraphs I read into the record earlier on how I propose to rebuild and improve staff morale in the organisation.

On Senator Dooley's second question on pensions, to which Senator Morrissey's question on the amount of the liability for the company going forward is related, we have available to us, as have all parties concerned, an actuarial assessment which embraces not only past service but future service. The scale of the numbers are available and are in the public domain. That is the issue that is being debated. To summarise the position on pensions, we seek a solution that will deal not only with the past service element of the equation but with the future service element. That is the reason the extent of the engagement is as intense as it is now.

Senator Dooley asked a question about short-haul route opportunities from Shannon Airport. The honest answer is that we will examine profitable short-haul opportunities wherever we can find them and we write a business case accordingly to support that. It is true that we have not added to the short-haul network from Shannon Airport in recent times but I would not rule that out in the future. We write a business case on the basis of opportunities arising. Aer Lingus as an organisation has always been proud of the fact that if it commits to a route it does so for the long term. We do not move in and out of routes except in exceptional circumstances. We are careful about the analysis we do because of the difficulty it causes on the ground if services are launched for a short period and then withdrawn. I assure the Senator that short-haul route opportunities from Shannon continue to be under active review.

Our transatlantic operation through Shannon Airport gives rise to a number of Dublin-Shannon flight connecting opportunities. If the Senator's question was more directed to whether we have plans to return to a type of commuter activity, the answer is we do not. That is not within the business case of Aer Lingus at present.

On the question on our cargo business, we are carrying out a reassessment of that business generally. It must be said that in recent years for good reasons cargo was not altogether compatible with the short haul short-turnaround aircraft operations Aer Lingus was following, especially on the European network. We are reassessing that situation to identify what cargo opportunities we can find at Dublin, Shannon or any of the other points to which we operate. I am aware from my background with Emirates Airlines in Dubai that cargo was an important part of its business. Dubai is the biggest sea-air transhipment point for cargo in the world. There was a great deal of cargo activity through that point. We will look afresh at cargo opportunities wherever we can find them.

Regarding Senator Dooley's point on the tourism plan, I draw his attention to the fact that we are already extensively engaged in discussions with colleagues at Shannon Airport Authority and we provide all necessary assistance to them to make sure that the tourism initiative that will be operational in the new year is in the best interests of Aer Lingus at Shannon Airport. Considerable engagement is taking place and I believe Shannon Airport Authority would speak positively of that. I will have meetings later in December with various other parties in the mid-west region who have a specific interest in tourism, and we will move that debate forward.

Senator Dooley

Following on from that, will Mr. Mannion comment on the company's commitment to transatlantic flights in an open skies environment?

Mr. Mannion

I should have drawn the Senator's attention to my earlier statements where I reaffirmed our commitment to the 400,000 seats to which Deputy Connaughton referred.

Regarding Senator Morrissey's questions on costs, Aer Lingus has come a long way. In 2000, the organisation employed approximately 6,000 people and carried 6.9 million passengers. In the budget for 2006, Aer Lingus expects to carry 9 million passengers and employee numbers are down to 3,500. What has been achieved in recent times in the context of the business plan has been positive. However, it is not enough to match the best of the low cost opposition. We will continue to refocus our efforts on reducing costs and improving efficiency wherever we can. However, we are a different model from the one being followed by other low cost carriers. We have a long-haul network in addition to a short-haul network and there will always be differences in that context between our costs and the cost structure of other low cost carriers.

We are very pleased with the growth and development of www.aerlingus.com, particularly this year. In our European markets passengers are really beginning to embrace the concept of using www.aerlingus.com. In recent months, up to 60% of our Europe-based passengers are now booking on www.aerlingus.com and overall, across the network, it is about 80%. It has been an incredible success story. In fact, our Internet sales team and our manager of distribution has won from the Irish Internet Association the award of Internet Visionary of the Year for 2005 in recognition of the success of his team.

It is true that the business plan dating from 2004 focused far more on the short haul side of the business. The rationale was, correctly, that much needed to be done in terms of improving our cost performance and efficiency in the short-haul network before we could dream of examining long haul opportunities. That is why there is a variation in the figures for capital investment between what was seen previously and what is seen now. The previous plan focused only on the short-haul side of the business while now we are looking to adopt a twin track approach for the future and to grow both the short haul and the long haul sides of the business.

Deputy Connaughton asked about investment in the company and the timescale for delivery of aircraft. In the aviation sector we are in a rather strange situation at present where, on the one hand, a number of airlines, especially in the US, are in financial difficulty but, on the other, when one goes to aircraft manufacturers to seek new delivery positions, they are difficult to find. The negotiations Aer Lingus has under way currently with both major manufacturers, Airbus and Boeing, on long-haul aircraft are more or less at the same point with both manufacturers in the sense that the earliest availability on new generation aircraft is 2011. In the meantime we will have to find what we call interim lift aircraft, which are aircraft of more or less the same capability of the long-haul fleet we have today, Airbus A330-200, if we are to continue to grow that operation.

However, once one takes delivery of new aircraft, especially if they are purchased new, one needs between 15 and 20 years from a cash flow point of view to pay off that type of investment. This is why the right mix for the future is a combination of debt, borrowed from financial institutions around the world, combined with an injection of equity to finance that expansion.

With regard to Deputy Connaughton's question about Shannon, we have made a commitment of approximately 400,000 seats. We will be very happy if his prognosis is correct that it could grow to 600,000 seats. We will adopt the same approach on long haul from Shannon as we have adopted on short haul from Shannon. We will continue to keep Shannon under review and we will expand our operations from Shannon, both short and long haul, as the opportunity arises to do so on a profitable basis.

Deputy J. Higgins

Mr. Mannion said he took the job of chief executive without expressing a view on the future ownership of Aer Lingus. He has certainly made up for his silence since then. He has emerged as an enthusiastic advocate of privatisation. A chief executive in Mr. Mannion's position is in a situation where there is a fundamental conflict of interest. He is supposed to represent the taxpayers and the travelling public — and in so far as they are Irish citizens, they are one and the same — and the staff in developing Aer Lingus as a publicly owned company. However, he is also leading a move where senior executives, including himself or any chief executive in his position, could now dream of becoming millionaires overnight through privatisation. Is that not an unsustainable position?

Senior executives must be thinking of who will buy Aer Lingus, under what conditions they will buy it and what structures should be put in place to make it attractive to prospective purchasers. Is not the implication of looking towards privatisation, started by his predecessor, that there is, in reality, a slash and burn policy in place in Aer Lingus with regard to jobs and the conditions of employment? Workers and trade unions say that Mr. Mannion has replaced 700 permanent workers, whom he pushed out, with 500 temporary staff. Is that not simply a move to re-employ workers with far less favourable conditions, wages and so forth than those that were let go? What is that if not a preparation for privatisation?

Even with regard to the services for passengers, I always try to——

Chairman

Will the Deputy put his question?

Deputy J. Higgins

Yes, it is a question.

Chairman

Some of your colleagues are becoming irate.

Deputy J. Higgins

We are all very sedate today, Chairman, considering the serious issues we are discussing. I try to fly Aer Lingus whenever possible but on 18 August I was returning from Brussels and the flight was scheduled for roughly 10 a.m. The aeroplane did not arrive and notice was given that it would be at 12 p.m. That time came and went but we were given no explanation and there was nobody there to represent Aer Lingus. I had to ring the chairman's office in Dublin — I am not sure that Mr. Mannion was in his position at the time — to get an explanation for the passengers as to why the aeroplane was late. It had broken down. That happens. Eventually some grudging handlers for Aer Lingus arrived and dished out coupons to us. Is that the future for Aer Lingus passengers? They might as well be sacks of spuds being thrown around rather than human beings.

The fear of many staff in Aer Lingus is that it will start with the privatisation of Aer Lingus and finish with a grotesque spectacle——

Chairman

Can we have a question, Deputy?

Deputy J. Higgins

——such as that of Irish Ferries, formerly a publicly owned company that is now privatised, leading the race to the bottom in replacing permanent, unionised staff with impermanent, vulnerable migrant workers unrepresented by trade unions and at the beck and call of pitiless profits. Is that where Aer Lingus is heading?

Is it not true that all the equity required could have been supplied by the State and that there was no barrier to the State putting in that investment in current conditions? Where is the business plan for the €2 billion equity Mr. Mannion mentions? Is it in place now or when will we see it?

Deputy Sargent

I welcome Mr. Mannion and wish him well in his role. Despite his talk about the business plan, the intent of that plan is to secure what he would call efficiencies but what others would see as a preparation for privatisation by fairly draconian means. Has the plan been written down? We really need to see something in writing. If Mr. Mannion is doubling the fleet, what are the plans for that fleet in terms of its use, the routes and how to get value for such a large investment? If there is €2 billion in equity, where is the bang for the buck, as it were?

As regards the investment, Mr. Mannion says he is in favour of privatisation and it is the Government line as well. Does Mr. Mannion not find it strange that the Government seems prepared to invest in other airlines through pension funds, etc? Does he see Government investment as another option or has he ruled it out? Is privatisation attractive to him for reasons that I cannot think of?

Mr. Mannion said that fuel costs were causing a headache and we could all say "Amen" to that. Can he say how far in advance hedging is in place? Compared to other airlines, does Aer Lingus see itself at a competitive advantage from that viewpoint? Has he put in place again the type of efficiencies achieved before outsourcing made it less efficient to balance loads for take-off, for example? I understand that prior to the outsourcing of loading, much more attention was paid to fuel efficiency in terms of freight and passenger loading, to ensure that planes used as little fuel as possible at take-off, which is a time of intensive fuel consumption.

Pensions have already been referred to. There is a view, in spite of Mr. Mannion's optimism — I hope it is well-founded optimism that he can get a resolution to the issues raised by RASA — that the company could do more, practically speaking, by way of the employer's contribution. Is he saying that is something he intends to do, or not? I ask him to put on the record that he is open to increasing employer contributions as a way of ensuring that a resolution is found. Aer Lingus has been found, generally, not to be forthcoming and quite hostile to that aspect of resolving the problem. Is Mr. Mannion serious about resolving the problem by offering that contribution increase?

Deputy S. Ryan

I welcome the delegates and wish Mr. Mannion and his team well for the future. Many of my questions have already been answered, for which I thank him. There are a couple of questions still outstanding, however. We are now almost at the beginning of December, so what is the projected profit for Aer Lingus for 2005?

We have heard a lot of vibes that pension matters will be worked out. Is it true to say that the proposed pension schemes can only be sorted out in the context of the privatisation of Aer Lingus? Is it Mr. Mannion's view that, as regards a resolution that would meet the requirements of existing pensioners and staff in future, there is not a willingness to resolve this in the context of the airline's existing structure?

Mr. Mannion has provided figures regarding staff numbers and he hoped that they would fall to 3,500. Is that the net figure after the 700 redundancies? Where do the 500 temporary employees stand in that context? Is Mr. Mannion saying that the staff figure is 3,500 plus 500, which would make 4,000? How do those figures link up? Does Mr. Mannion accept that the previous strategy was a bad one in that it made people redundant before the net requirements of various areas and departments were identified? That strategy was not cost-effective for Aer Lingus.

I welcome what has been said about making a good start, but it is important to be up-front and as clear as possible about it. Mr. Mannion's predecessor, Mr. Willie Walsh, appeared before this committee and said that short-haul requirements could be met by Aer Lingus. He identified a requirement of €1 billion, which he said was basically to finance the requirements for long-haul aircraft. This question was raised in a round-about way, but not specifically, by other members of the joint committee. What is the projected cost of an aircraft? How many new aircraft is Mr. Mannion talking about in the context of that €2 billion sum? What is the time frame for meeting that, and how can he know at this stage the number of aircraft required when he does not have a plan? If a person wanted to be objective about that, given the debate on privatisation, it is easy to pull a figure out of the sky and say, "This is the requirement. There's no way that we can or the State can do it."

I see Deputy Peter Power is smiling, but, in fairness, some of the questions he posed to Mr. Mannion initially on the other alternatives should have been put to his own Ministers before introducing the Bill to provide for the privatisation of Aer Lingus. That Bill was pushed through by Deputy Peter Power and his colleagues last year.

Deputy P. Power

I did not hear him say that. It is not just equity.

Deputy S. Ryan

I will bring this matter to a conclusion now. The DAA has made a planning application for a second runway at Dublin Airport. What is the view of Aer Lingus concerning the need for a second runway and the timescale involved? I posed a similar question to Mr.Mannion's predecessor.

Mr. Mannion said he was in favour of privatisation. Will he give us the benefit of his thoughts on the form of privatisation that he would consider as being ideal? In an article in The Sunday Tribune, Mr. Mannion stated that the time to raise equity is, and I quote, “When you don’t need it”. He also said it made more sense to raise as much as possible. Will he elaborate on that?

Mr. Mannion

I will take Deputy Joe Higgins's questions first, if I may. I indicated, before I joined Aer Lingus, that I did not seek any commitments on the future ownership structure of the organisation. My view was then, as it is now, that I am happy, and honoured indeed, to serve as the chief executive of Aer Lingus in whatever ownership structure the Government decides for the future. Therefore, the question of me seeking to personally profit from the process is clearly not relevant.

As regards the second point, yes I am personally in favour of privatisation. From a staff point of view, I completely reject the notion that there is anything approaching a slash and burn policy in the organisation. Everyone I have spoken to across the organisation so far hugely welcomes talk about growth for the future, especially in long haul. If there is one issue which lifts morale in the airline industry, it is growth in long-haul operations. I believe there is already a substantial body of support across the organisation for that process. In terms of the privatisation, let me remind members that the employees themselves are significant shareholders in Aer Lingus — 14.9%. They too will gain from the fruits of their labours in a privatisation scenario.

On Deputy Sargent's questions on fuel, I am pleased to say we have a substantial amount of hedging in place for 2006 and I congratulate our treasury management team whose job it is to manage our fuel requirements. In relation to 2007, a limited amount of hedging is in place. That is entirely because 2007 forward fuel prices are very expensive and our commercial view is that it is not prudent to hedge at those levels. By industry standards, we are in good shape. Indeed, I compliment my colleagues in Aer Lingus treasury. Our fuel hedging strategy is among the best I have seen in my time in the industry. As regards the question on our strategy on conserving fuel, the strategy remains very much in place — that we balance the loads as best we can to optimise our aircraft take-off position and in our fuel consumption. That remains a fundamental part of Aer Lingus's policy.

On the question on pensions and employer contributions, everything is on the table and we shall see what comes out the negotiation process which is currently under review. However, Aer Lingus is competing with other airlines which do not have anything like as generous a pension scheme as we have and we must conserve and manage our costs as best we can to be able to withstand that competition, and I make no apology for saying that to the committee. Clearly, we need a pension solution which, while in the long-term benefit of staff and pensioners, is also one which secures the future financial viability of Aer Lingus.

Turning to the questions raised by Deputy Seán Ryan, the projected profit for 2005 will be lower than 2004 for the reasons I mentioned. In spite of the excellent fuel hedging strategy we have, fuel is costing substantially more this year and, indeed, will cost more in 2006. Therefore, profits will be down but by industry standards it will be a very creditable performance when the figures are announced earlier next year.

Deputy S. Ryan

Could Mr. Mannion give us an insight into what it might be?

Chairman

That is insider trading.

Mr. Mannion

On the question on pensions and privatisation, the pensions issue needs to be resolved. In the context of the privatisation process currently under way, it is my view that the pensions issue will need to be resolved before phase two is completed. Phase 2 involves a decision on the form and content of privatisation and its execution. Even if the privatisation process does not go ahead, we will still need to do something on pensions. When we talk about staff numbers in Aer Lingus, we talk about something called full-time equivalents. Whether somebody is on a fixed-term contract or an a permanent contract, they are all added in to arrive at a single number at the end of the year.

On the question on the fleet expansion and the value of new aircraft, generally, long-haul aircraft are priced at approximately US$100 million each but the investment does not end there because there is a requirement every time one invests in the new aircraft to tool up for spares which could add another 25% to that investment.

Deputy S. Ryan

Linked to that question is projected requirements for additional aircraft, that is, the numbers.

Mr. Mannion

We have such numbers but I think it is appropriate if they are released by the Government in due course when the long-term plan is finalised.

Deputy S. Ryan

We talked about €1 billion on the last occasion and approximately €2 billion now. That was related to the number of extra aircraft required to be purchased.

Chairman

Mr. Mannion said that announcement would be a Government one and not one to be made by him.

Mr. Mannion

On the question of the Dublin Airport Authority planning process, a planning application for new runway facilities was mentioned. In the long term, new runway facilities will be needed at Dublin Airport to cope with the growth. However, in the shorter term — DAA and Aer Lingus are very much at one on this — the immediate priority is to get terminal two finalised to the benefit of all existing and new airline operators at Dublin Airport. We would encourage, and are very much at one with, DAA in that task.

Deputy S. Ryan

I referred to The Sunday Tribune. I asked a question——

Chairman

That was commented on earlier.

Deputy S. Ryan

When?

Chairman

It was commented on in regard to privatisation.

Deputy Crowe

I welcome Mr. Mannion and the fact his approach is one which recognises the legitimate role of all in Aer Lingus and that he put it on record today. In regard to the push factor, the publication of the respect and dignity policy was timely. In the list of priorities, how important is human resources practice given the difficulties which have been encountered? Other speakers alluded to the difficulties in regard to the hiring of temporary staff and so on. A number of questions have been asked about the 500 temporary staff. Will Mr. Mannion respond to that?

I take it Aer Lingus is still working to the 2004 business plan which referred to 1,325 redundancies. Is Aer Lingus still looking for those redundancies? Some 700 people have taken redundancy. Is it not a contradiction to look for those redundancies yet hire temporary staff? I have been told by staff difficulties have been created by the hiring of temporary staff, those temporary staff getting permanent jobs and people who have been made redundant coming back in. That, in itself, creates difficulties in regard to human resources.

Mr. Mannion said the pensions discussions are ongoing with Government advisers and the different groups. Have the unions been involved in any of those discussions with Aer Lingus and the Government's advisers? Is there a target date for ending the discussions? Is Aer Lingus still looking to shed those jobs?

Mr. Mannion spoke about the business plan and said it is nearing completion. Surely everything revolves around the business plan. If the business plan is not in place and if people do not know what Aer Lingus's plan is, how does it expect investment? Mr. Mannion was a bit vague on when he hopes to have the plan in place. Is he talking about six months, three months or otherwise? How will the subsidisation of American companies, and the fact that some countries outside the EU seem able to subsidise their national airlines, affect Aer Lingus in the context of the open skies policy? How much is that affecting Aer Lingus?

Earlier there was a question about the increase in passenger numbers of 33% on continental European routes. How does that compare with Aer Lingus's competitors in continental Europe? What is the position regarding Aer Lingus's services to Britain and the United States as compared with those of its competitors? I presume there are many more people travelling now than did in the aftermath of the tragic events of 11 September 2001. I wonder how Aer Lingus is fairing by comparison with its competitors on those other routes. Deputy Glennon spoke of Aer Lingus's 21 extra routes, while passenger numbers have increased by 33%, but that would equate with the amount of extra routes. I note that Mr. Mannion stated that profits are still increasing. Average fares have reduced and profits must have reduced as a result.

Senator Daly

I wish Mr. Mannion well in his new position. I have represented Shannon here since 1973. As Mr. Mannion will be aware, Shannon and Aer Lingus have been inextricably linked since the foundation of Aer Lingus.

I am glad to hear the emphasis Mr. Mannion put here on a number of occasions on improving morale in the company. He must be aware that morale, certainly at Shannon, as Deputy Connaughton mentioned, is at a low ebb and there is a need for fairly responsible action to deal with that. Two issues are undermining morale, one of which is outsourcing which was mentioned here. I am glad to read in Mr. Mannion's statement an indication that he is looking at alternatives to outsourcing. Morale will not be restored in a company if there is a constant fear of outsourcing and of the economic implications, which much of the time would not be feasible for those involved.

The second issue is pensions. It is not possible to restore confidence, in a situation where people who have given a life-long service to Aer Lingus appear to have been badly treated, when there has been constant agitation with regard to legislation introduced in the Oireachtas while also seeking to have the matter addressed through representation at ministerial and other levels. It seems necessary that Mr. Mannion would accelerate the moves to get this issue finally resolved.

Towards the end of his contribution, Mr.Mannion spoke of the need for input and positive contributions from the wider community. He partly answered this, in the context of the privatisation issue, in terms of the positive contribution, involvement or stake the management and the staff of Aer Lingus can have in a new arrangement and how privatisation, which is feared by many, could, instead of being a source of reducing morale in the company, increase morale substantially if the management and the people working with Aer Lingus could be satisfied that in a new arrangement their conditions and stability of employment would be enhanced rather than damaged.

Mr. Mannion might also mention what he has done on the question of marketing, especially in the opening of the new routes into the United States and whether Shannon Airport, particularly with the Shannon-Chicago route, can feature in that.

Deputy Shortall

I welcomed the changed tone of the chief executive's comments and his attitude to staff issues, etc. I am somewhat disappointed that Mr. Mannion has not been particularly forthcoming in respect of specific questions that have been raised repeatedly here. I will attempt, yet again, to look for specific replies from him.

I want to ask Mr. Mannion about the 2004 business plan. Does he accept at this stage that the plan was seriously flawed, in spite of the fact that it was approved by the board and, indeed, by Government and was endorsed as Government policy? The plan provided for 1,300 redundancies and stated that these were essential if the company was to survive. Now, one year later, Mr. Mannion is saying that this is not so and all the company needs is 700 redundancies. Can he explain that significant shift in position from this time last year? I am trying to ascertain from Mr. Mannion the exact present status of the plan. There seems to have been a significant shifting in positions since his predecessor was in here talking about how essential it was. What is the plan to which the company is working at present and what is the case for the additional equity?

Similarly, how is it that this time last year we were being told by Mr. Mannion's predecessor that, as far as I can recollect, the company's equity requirement amounted to €1 billion over eight years? Today Mr. Mannion is saying that the equity requirement is €2 billion over five years. This also does not stake up.

I want to ask Mr. Mannion a question he has been asked four times at this meeting. Will he confirm the figure, which we understand is accurate, for the people who have been brought in on temporary contracts to replace what were permanent jobs? My understanding is that there are 500 people working in the company on temporary contracts, replacing 700 people permanent staff. How can Mr. Mannion defend that situation, if he is saying that the future is bright and the company will grow and if he is also saying that, on the one hand, he needs less staff and, on the other, he is bringing in considerable numbers of people on temporary contracts? It does not add up. Can Mr. Mannion explain the situation?

Mr. Mannion

I will take Deputy Shortall's questions first, if I may. I did not say that we need €2 billion of equity. I am talking about a capital expenditure requirement associated with new aircraft.

On the 2004 business plan, what we are currently engaged in expanding that plan. The plan only lasted until 2007. We are now pushing it out to 2010 and beyond. It is also true that the business plan in 2004, for all the reasons I mentioned, did not focus on long haul aircraft. It focused only on getting costs right in the short-haul network in order that we could compete with the best of the low cost operators. A substantial amount has been achieved on that. It would be wrong to say that the 2004 business plan was flawed in that respect. I quoted figures for the number of passengers that we handled — 6.9 million passengers in 2000 with a workforce of some 6,000. In 2006 we will handle 9 million passengers with employee numbers of some 3,500. How could that be described as a flawed or failed business plan?

Deputy Shortall

I am referring to the 2004 plan.

Chairman

Please allow Mr. Mannion to continue.

Mr. Mannion

I do not agree with that assertion. It is true that 700 employees have left under the voluntary severance plan. It is also true that, on a requirement for seasonal staff, we do from time to time take on staff on fixed-term contracts. There is no shame in providing employment opportunities wherever we can. Our policy, as I stated earlier to a number of the Deputies, is not to re-employ staff, who were on full-time permanent contracts and who take the voluntary severance programme, as temporary fixed-term staff.

Deputy Shortall

Is Mr. Mannion confirming the figure of 500 temporary staff?

Mr. Mannion

That figure varies from time to time. It is substantially less than that now.

Turning to Senator Daly's questions, I take his point on staff morale. Staff morale is the life-blood of our business. We are in a people business. If the morale, especially of our front line crew, falls, we have a problem and the passenger perception of the airline will be affected. I am completely committed to retaining and improving staff morale at the highest possible level that we can manage. It is what people internationally have associated Aer Lingus and the shamrock with and I can promise the committee that under my stewardship we will continue to emphasise that.

I also share Senator Daly's concern about the pensions issue. It is a major issue. As I stated in answer to earlier questions, already I have attended at least ten meetings on it. This is an intensive process of consultation. We are seeking a resolution to the matter but there are other stakeholders involved and we need support from the widest possible constituency.

On Deputy Crowe's questions on morale and HR policy, we are committed to a situation whereby our frontline staff, in particular, will continue to be the best in the industry. The staff have differentiated Aer Lingus across Europe and on transatlantic routes for a long period. I know from previous experience about the quality of cabin crew on other airlines. I assure the committee that Aer Lingus will continue to have the best cabin crew in the world. I am fully committed to retaining these high standards.

On pensions, I should have added earlier that the advisers to the union group and the CRC are also involved in the process of engagement currently under way. There is not just the involvement of Government advisers and our own investment advisers in the privatisation process, there are also the advisers who have been appointed by the unions, the CRC and ESOT. These advisory groups are part of the consultation process that is taking place.

The Deputy also asked about the current status of the voluntary redundancy programme, which is almost closed. We are not expecting any significant number of further redundancy applications as a result of the programme.

The final question related to the subsidisation of US carriers. It is ironic that much discussion in this committee has been about pensions and pension-related matters. In regard to the US carriers, it is true that chapter 11 will give them the opportunity to set aside pension liabilities and leave pensioners at the behest of the Government and whatever largesse they can find from that source. This is a measure of the competitive environment in which we operate and is also a measure of how crucial it is to reach a resolution that is in the best interests of Aer Lingus, its staff and retirees.

Deputy Shortall

May I have clarification on the point I raised? Mr. Mannion is suggesting that the capital requirement of the company will be €2 billion for the next five years. His predecessor said it would be €1 billion for the next eight years.

Chairman

To be fair, Mr. Mannion explained that the original figure related to the period 2004 to 2006. He is now envisaging a five-year programme and, therefore, there will be changes. He clarified that matter twice today.

I thank Mr. Mannion and Mr. O'Sullivan for coming before the committee and for being forthright in regard to the information they provided. I wish Mr. Mannion well as CEO of Aer Lingus. I hope he will have no trouble finding the €2 billion in order to have room for expansion.

The joint committee adjourned at 5.05 p.m. until Wednesday, 14 December 2005.