I thank the Leader and the Members of the House for the opportunity to be here today. Before I came back from Transport Council in Luxembourg, I phoned the Government Whips both here and in the Dáil to say that I wanted to go to both Houses. The Dáil had exactly one hour and I thought it would be reasonable to have the same in the Seanad. The matter will be ongoing for the next six to eight weeks and I am more than willing on any occasion to come to Seanad Éireann. As a former Member, I have affection for and trust in this House.
I welcome the opportunity to report to the House on the current difficulties in Aer Lingus. As I said in the Dáil on 11 October, Aer Lingus is losing £2 million per day and without action, it will run out of cash early next year and it is forecasting significant losses in 2001 and 2002. To put it bluntly, if urgent action is not taken Aer Lingus will be insolvent within a short period of time.
This morning the chairman met me to reinforce that message and to say that if the action proposed is not taken, it will result in the demise of Aer Lingus. I hope that the realism that has commenced will continue, because nobody wishes to see the demise of Aer Lingus. The Government is determined to keep Aer Lingus afloat and to retain the maximum number of sustainable jobs. It is also conscious that a company cannot continue to trade what is termed recklessly.
The horrendous events of 11 September have had a dramatic impact on the company with booking activity significantly down on last year on transatlantic, UK and European routes. Given the experts' view that there will be no recovery before the third quarter of 2002, this makes for gloomy prospects next year on all routes but particularly on the transatlantic ones.
While the events of 11 September had a catastrophic effect on Aer Lingus, a number of internal and external factors had already begun to impact on company profits. These include the industrial relations disputes, the impact of the foot and mouth outbreak and the deepening global economic downturn.
While losses in the region of £25 million to £30 million had been forecast by the company prior to the terrorist attacks, the company could have coped with the difficulties they were experiencing. It had already undertaken a review of operations and was about to put in place an integrated package of measures designed to yield savings from fleet reduction, operational efficiencies, reduced overheads, etc. However, following the terrorist attacks, the company advised the Department that the trading difficulties had developed into a crisis and that their previous forecast of £25 million to £30 million in losses for 2001 had now more than doubled.
Aer Lingus immediately announced additional cutbacks to address the serious situation. Overall, the cutbacks will reduce the scale of the company's operations by 25%. In addition, the company has slashed fares on a number of routes in an effort to stimulate traffic. While those are very cheap – it is £169 to go to New York and Boston – no money is being made on those fares. The main purpose is to bring cash in hand to the company and it also hopes to reassure people about flying.
In order to address this grave situation, Aer Lingus presented me with a survival plan last Monday. The plan, in summary, broadly confirms the key details already known in relation to the financial state of the company, including the cash crisis it will face in January. The plan sets out the various revised revenues and costs necessary to achieve viability and to take account of the company's reduced scale of operations. It also sets out the assumptions underpinning these figures and the job losses and flexibility changes required. It identifies the need for a loan guarantee in respect of a working capital facility. In addition, Aer Lingus stated that is does not have the cash resources to pay for a redundancy programme, including statutory redundancy and accordingly non-repayable funding is requested.
I will be preparing a report for Cabinet next week in which I will be asking it to consider what form and extent of Government assistance would be appropriate both from the company's point of view and the view of seeking European Com mission approval in due course for whatever form of assistance is to be provided. In addition to the requirement for approval by the European Commission, agreement within the airline for the survival plan is also critical. I cannot be more explicit than that. If the plan is not very rapidly taken on board, then the ultimate crisis faces the company.
It would be lovely if I had soft words to say but I do not. There are no soft words to describe the situation which now exists. I am normally remarkably optimistic in the face of many challenges, but on this I am struck by the starkness of the crisis. If the plan is not adopted quickly, if not immediately, then it is the end of the road.
Last Tuesday the Transport Council discussed the repercussions of the events of 11 September on aviation. Central to the discussions was a report by the Commission which included proposals for a limited package of horizontal measures to compensate for the events of 11 September. Those proposals are outlined in my script which I have circulated. The discussions ranged across the overall economic impact on airlines, including aviation security, insurance, air traffic control and competition issues.
In preparation for the meeting, I had either face to face meetings or telephone conversations with a number of my EU ministerial colleagues, including those from Austria, France, Portugal, Italy and Greece. That is in addition to correspondence and a meeting with the Belgian President of the Transport Council. I also met Commissioner de Palacio on several occasions, most recently in a private meeting on Tuesday morning prior to the Council during which I was explicit about the position of Aer Lingus.
I emphasised to the Council the exceptional nature and impact on Aer Lingus of the events of 11 September, which accounts for 70% of direct Ireland-US traffic. I highlighted that the transatlantic aviation market is proportionately more vital to our economy than it is to the economy of any other EU member state. I stated that direct transatlantic links are crucial in attracting US tourists and that it would be wrong to reward terrorism by allowing any EU airline to collapse because of the events of 11 September. I also warned against any agenda to hasten consolidation on the back of terrorism.
In addition, I informed the Council that we do not advocate or seek a return to any regime of unco-ordinated or easy availability of state funding for European airlines and that we should not look at it as a normal state aid problem. I stressed that these are exceptional circumstances in aviation to which the European Commission should respond in an effective and measured way. I emphasised that we recognise the enormous strides which have been achieved under the liberalisation of the European aviation sector – more competition, new routes, greater variety and standards of service, different ownership profiles of airlines etc. – all of which are in the consumers' overall interests. In concluding, I emphasised that the Commission proposals for compensating airlines as a result of the US terrorist attacks fell short of the measures deemed by Ireland to be necessary to address these difficulties.
In relation to concerns expressed about possible distortions in competition, having regard to the assistance available to US airlines, which are in competition with European airlines, Commissioner de Palacio outlined that she had written to the US Secretary of Transport, Mr. Minetta, to convey the concerns of the European Commission on this issue. I should say, in support and approval of civil servants, it was somebody in my Department who accessed the information on the Internet, not just that Continental and Delta had received $0.5 billion in direct cash aid from the American Congress but also the amount of that aid they were using on the American routes. I presented that information to Commissioner de Palacio in the morning and she then wove it into her speech at the Council meeting. We talk about distortion of competition and what would happen if Ireland was given permission to help Aer Lingus, but it is nothing compared to the US aid to American airlines and how that is distorting the European market.
Around the Council table, the majority of Ministers either backed the Commission's limited proposal or agreed that some aspects of it should be eased, but only in a horizontal manner available to all airlines. There was a significant amount of negotiating on the Council conclusions and a reference to the "exceptional circumstances" was included at my insistence. The relevant conclusions on the general economic situation facing airlines are set out in my script. I was glad to have the "exceptional circumstances" reference inserted and also the targeted aid which the Commission will examine on a case by case basis. Italy and Ireland combined on the wording of that proposal.
The Taoiseach yesterday met the European Commission at which he spoke about the uniqueness of Aer Lingus's situation because of the transatlantic matter and its central role in Ireland's access transport policies. The Transport Commissioner assured him that within the framework of the state aid rules, the Commission would consider any proposal from Ireland. We face a daunting task in persuading the Commission and the Council to permit any form of direct financial assistance to Aer Lingus outside the horizontal measures I have mentioned.
My officials are examining in detail every aspect of the Commission's guidelines for state aid and the Secretary General and the Assistant Secretary will travel to Brussels tomorrow to brief Commission officials on the general aviation situation appertaining to Ireland and on the Aer Lingus restructuring package. In addition, my officials will meet Commissioner Byrne's Cabinet and other Irish officials from the Permanent Representation of Ireland to the EU.
I assure the House that we will use every avenue open to us to explore these possibilities, but time is of the essence as Aer Lingus is haemorrhaging cash daily. We must find urgent solutions to this critical situation and significant work must be undertaken over the coming week.
I have had several meetings with the central representatives committee of Aer Lingus unions on the current crisis. These were on 24 September, 11 October and yesterday. At yesterday's meeting I advised them, as I mentioned earlier, that I will be asking the Cabinet next Tuesday to consider the form and extent of assistance from the Government for Aer Lingus that would be appropriate, both from Aer Lingus's point of view and the view of seeking European Commission approval for whatever form of assistance will be provided.
I also met the chairman of Aer Lingus this morning and I had very sobering discussions with him. Let nobody be in any doubt, there is no hidden message in my words, or any sense of joy. The situation is dire and desperate. To go back to what I said at the outset, if we do not all get together in a spirit of partnership to seek to save 4,000 plus jobs, it is the end of the road for Aer Lingus.
This afternoon, the board of Aer Lingus is meeting to discuss the survival plan. We are committed to the survival of Aer Lingus, and I should imagine that is an all-party view. The time has come for all parties urgently to work together in an effort to ensure that we will have a fundamentally restructured airline going forward into the future and to protect the maximum number of sustainable jobs.
The emphasis should be on the transatlantic routes, which represent the biggest percentage of Aer Lingus's operations. Highlighting that fact enables us to emphasise the distortion created by the US Congress's direct aid to airlines which are already using this route. The next four, five or six days will be crucial in terms of the survival of Aer Lingus.