I am speaking on behalf of IMPACT which represents pilots, the members of the cabin crew, who comprise the largest single group of workers in the company, and some ground staff. The proposed takeover of Aer Lingus by the International Airlines Group presents significant risks to Ireland's interests in terms of accessibility to the island of Ireland for business and tourism. It also represents a significant risk to the security of employment for Irish workers employed directly or indirectly by Aer Lingus. Therefore, the Government and the Dáil, as guardians of the State's 25.1% share in the airline, will have to make a very serious decision in the coming weeks.
I ask the committee to consider a couple of key points of national interest that will arise if a sale of the State shareholding to the International Airlines Group is to be contemplated. As an island nation, the State should maintain some holding in an airline that serves to maintain strong links with the EU, the US and other critical trading partners. The sole purpose of the International Airlines Group's interest is to expand its own commercial interests. The costs of such expansion to Aer Lingus and the Irish market are likely to be secondary. Heathrow Airport is a vital hub connection for Ireland. Aer Lingus is the third largest holder of slots in Heathrow. The International Airlines Group is the largest and Lufthansa is second largest. Aer Lingus owns 23 prime-time return slots and two seasonal slots at Heathrow. These slots would make greater returns for the International Airlines Group if they were used to service the London-US market rather than the London-Dublin market. In such circumstances, they would encroach on the successful direct connections between Ireland and the US.
It is in the best interests of the International Airlines Group to funnel as many passengers from UK provincial and Irish airports through its Heathrow hub at terminal 5. Over 1 million passengers per year travel from UK provincial airports to use Dublin terminal 2 as a hub to the US. British Airways and the International Airlines Group would like to reclaim this lucrative long-haul business. The business plan of the International Airlines Group in the event of a successful takeover bid remains unknown. Our best guide to the company's likely actions can only be informed by its participation in the last takeover bid by Ryanair. That bid involved dismembering Aer Lingus between three entities: Ryanair, the International Airlines Group and Flybe. The proposal sought to carve up the assets, including the Heathrow slots, the transatlantic operation and the Aer Lingus brand, between the three companies. There were very limited undertakings from the International Airlines Group regarding the eventual use of the Heathrow slots after an initial period of three to five years.
There is no evidence to suggest the current IAG bid is not similar in its intentions.
Aer Lingus directly employs 3,900 people, the overwhelming majority of whom live and work in Dublin. Around 2,100 employees work exclusively on the ground in clerical, operative and other back office roles. For the purpose of the takeover, IAG would have to identify cost and revenue synergies to justify its investment. One of the primary cost synergies would come from a reduction in the Aer Lingus employee headcount, particularly in the back office where there would be readily identifiable duplication with existing resources in London and possibly in IAG’s Iberia base in Madrid. This is also true of some maintenance functions, given the substantial IAG maintenance facilities in London and Madrid. Executive and senior decision making would transfer to London, with perhaps a token executive presence in Dublin. Following the IAG takeover of Iberia, the company announced 4,500 job losses. On a like for like basis with Iberia, this would represent job losses of between 1,000 and 1,200 in Aer Lingus at Dublin Airport. This figure factors in the Aer Lingus jobs lost less than five years ago under the greenfield plan. The IAG CEO’s record with Aer Lingus speaks volumes. During his tenure as Aer Lingus CEO 2,500 Irish jobs disappeared forever. We have confirmed these estimates with analysts in Dublin and London. Following the rejection of the two initial bids, a research note from Nomura, a major international holding company, observed, “Any material bid increase is unlikely to be forthcoming without the ability to drive significant cost synergies”.
As a substantial shareholder in Aer Lingus, the Government will be aware of the long-term incentive plan for current Aer Lingus senior management. Committee members should further be aware that a takeover of the nature proposed by IAG would represent a substantial wealth windfall for individuals in the management team by way of the long-term incentive plan and other share bonus schemes. Therefore, consultation with management or the board on this issue must have due regard to this reality.
Ciarán Hancock’s column in yesterday's edition of The Irish Times made for interesting reading. He pointed out that the company, founded in 1936, had survived a world war, the 1970s oil crisis, the 9/11 crisis, Ireland’s worst recession in living memory and competition from Ryanair, including three hostile takeover bids from that company. People seem to forget that it has stood on its own two feet quite well since the turn of the century and that it has arguably had its best trading years during the recent recession. The company delivered profits in 11 of the years between 1999 and 2013. In the four full trading years from 2010 it made an aggregate profit of €187 million, while its operating surplus for the first nine months of 2014 was €103 million. Revenues in these four years rose by 15%. At the end of last September the airline had €973 million gross in cash, while passenger numbers, including for Aer Lingus regional, last year hit a record 11.1 million. It has successfully established Dublin as a hub to North America, with the number of passengers carried on its transatlantic services rising by 20.6% last year. This is far from a deadbeat airline.
In a post-takeover Aer Lingus it is almost certain that the real decision making power would be remotely relocated to London, with functions considered unnecessary duplication in Dublin. That would mean job losses. IAG has stated IMPACT’s claims of job losses of the order of 1,000 to 1,200 are wide of the mark, but implicit in this statement is the fact that job losses are inevitable. In the absence of a detailed plan from IAG, we can only assume the company would take the same approach as it did when Iberia merged with British Airways to form IAG. Iberia was forced to shed 4,500 jobs. Our estimate is adjusted for scale and takes account of the greenfield plan redundancies. Analysts in Dublin and London have confirmed that our figures are closer to the mark.
Given the cyclical nature of the aviation industry, at the first sign of trouble in a post-takeover Aer Lingus, IAG would have the power to limit this island’s air connectivity with London and the United States in order to lower its overheads. These are two of the most important pumping arteries of the economy. An economy in recovery such as ours cannot afford to trade its future away. We can never expect or assume that IAG would see these concerns in the same way. Its commercial interests would always come first. I, therefore, urge all Deputies and Senators to do their utmost not to do something rash or, worse again, stand back and let something happen that could never be reversed.