The main purpose of this Bill is to give effect to the employee share ownership plan agreed by the Government and Aer Lingus unions and to provide for a legal framework to facilitate a process of external investment in the airline in the event that the Government embarks on such a process. The Bill also includes an enabling provision for the establishment of new pension schemes by Aer Lingus for general employees and pensioners and for amendments on the appointment of directors, including worker directors.
Government policy for the establishment of ESOPs in semi-State companies is that the total amount of equity which an employee share ownership trust can hold is 14.9%, of which up to 5% of equity may be given for organisational transformation and the balance of up to 9.9% must be paid for in cash to the Exchequer. The Government policy envisaged that the full 14.9% is only relevant in certain circumstances, such as when the State is exiting from the company.
Aer Lingus employees already hold shares in the company under the employee share participation scheme, ESPS, which was agreed under the Cahill plan in 1993. This scheme provided that employees satisfying certain service criteria were entitled to receive the equivalent of 10% of the issued share capital of Aer Lingus as at 31 December 1995 — approximately €30.98 million — earned out of profits, of which 5% was by way of shares and 5% by way of cash. Since the scheme was established in 1996 a total of €15.5 million has been paid to staff in cash and a total of 12.2 million shares in Aer Lingus Group plc have been allocated to staff. No further shares or cash are due to be allocated or paid under the existing scheme.
Following the Government decision in December 1999 sanctioning an initial public offering of Aer Lingus shares, negotiations commenced on an Aer Lingus ESOP to bring the employees' shares to 14.9%, in line with Government policy. While progress was made on some of the ESOP issues in 2000, negotiations did not conclude, due to a number of external and internal difficulties including industrial relations problems in 2000-1, the deepening economic downturn and the impact of foot and mouth disease, all of which led to the eventual cancellation of the IPO process and to the withdrawal of the Aer Lingus Bill 2000, which had been passed by Seanad Éireann in June 2000.
These events were quickly followed by the terrorist attacks of 11 September 2001 and the consequent devastating global impact. As we all recall, the aviation sector was badly affected. Some airlines did not survive while others are still struggling to recover from the impact. For Aer Lingus, the events of 11 September 2001 greatly exacerbated an already difficult trading position, with the result that the company was on the brink of bankruptcy in late 2001. Faced with this crisis, the Government decided on 23 October 2001 to facilitate private sector and further staff investment in the company. This was contingent on support by Aer Lingus staff for implementing the survival plan in full.
The survival plan agreed at the time included the reduction of more than 2,000 in staff numbers, a pay freeze, substantial work practice changes and the sale of non-core assets. This plan was the subject of intense negotiations with unions with the assistance of the Labour Court and the Labour Relations Commission. A key element in the acceptance of the plan was the Government's willingness to negotiate an increased staff shareholding. Agreement on a framework for the ESOP was reached in December 2001 following detailed and intensive discussions involving Ministers, union, company management and senior officials from the Departments of the Taoiseach, Finance and Transport. It is clear that the survival of the airline was due to the quick action to cut costs and stem losses, which involved significant change and pain for the staff of the airline. The ESOP is a tangible recognition of that contribution by staff.
I refer again to Government policy on staff shareholdings in State companies. Due to the unique circumstances of Aer Lingus in late 2001 when it was on the verge of bankruptcy, it was decided that on the 9.9% element, the consideration would be the pay foregone element of the survival plan. A judgment was made at the time by Ministers that this was the only course of action to ensure the survival of the company.
During 2002, departmental officials, company management and unions took the basic framework already agreed and together with their advisers negotiated and finalised the necessary legal documentation, culminating in the signing of documents, such as the ESOP deed of covenant and the trust deed, in March 2003. The significant time gap between the agreement on the ESOP framework in December 2001 and the conclusion of the legal documentation in March 2003 was due to a number of factors, including the highly complex nature of ESOPs from a legal, technical and administrative point of view. There was also a delay in commencing negotiations due to the industrial action by pilots in the first half of 2002.
Existing legislation only allows for the distribution of up to 5% of the share capital of Aer Lingus for the benefit of staff. Full implementation of the ESOP, including the issuing of the additional 9.9% shareholding to staff and the appointment of an ESOP director, can only be completed with the enactment of this legislation. The key elements of the agreement on the Aer Lingus ESOP are as follows: an employee share ownership trust, which would hold shares on behalf of the participants will be established with an equity base of up to 14.9%, including the shares currently held by staff; the existing staff shareholding is open to purchase by the ESOT; payment for the additional 9.9% will be by way of the pay foregone elements of the survival plan; the implementation of the ESOP is subject to verification by the chief executive of Aer Lingus that the relevant elements of the survival plan have been implemented; and the ESOT will be entitled to appoint one director to the board of Aer Lingus with a further director to be appointed by the Minister from nominations submitted by the unions. For as long as the Worker Participation (State Enterprises) Acts apply to the company, the aggregate number of worker directors and ESOT directors cannot exceed four. In line with Government policy, for as long as the State holds any shares in the company, the maximum shareholding which the employee share ownership trust and staff can hold is 14.9%.
As I said earlier, this is a unique employee share ownership plan arrangement made in unique circumstances. At the time the employee share ownership plan framework was agreed, the company was arguably of very little value. Now, however, that stake is worth a very considerable figure according to analysts' valuations which have appeared in media reports during the past months.
Whatever the ultimate value of Aer Lingus, it should be acknowledged that staff now have a valuable stake in a valuable company and all efforts should be focused on strengthening the company financially and operationally in order to increase its competitiveness and potential to exploit profitable growth opportunity in the interests of all stakeholders. I want to make it clear that whatever the future circumstance and policy decisions of Government, the 14.9% will remain the limit of staff shareholding while the State holds any shares in the company.
In a sense, the Bill marks the closing of a very traumatic period in the airline's history. With the enactment of the Bill, the Government will fulfil its commitment on the increased employee shareholding in exchange for full implementation of the survival plan. That survival plan has led to the turn around in the company's finances with the company returning to profitability in 2002, one year ahead of target, with an operating profit of €63.8 million compared to a loss of €52.1 million in 2001. The company will shortly be announcing an operating profit of €78.5 million for 2003. This result was achieved against a tough background in 2003 including the war in Iraq and the SARS scare.
On the operational side and in spite of the difficulties of the past two years, Aer Lingus has introduced services on 16 new routes, all from greater efficiencies in the utilisation of existing aircraft and staff resources. This brings the current number of routes served by Aer Lingus to 42. This year services will be introduced by Aer Lingus on a further nine new European routes. This ability to respond flexibly and rapidly to new opportunities is a reflection of the developing new culture in the organisation which allows Aer Lingus to compete and grow.
I commend the board, management and staff for their commitment in achieving this remarkable recovery. They have transformed the airline into a lower cost, flexible, efficient business model, offering low fares with a quality service. As a result, the airline is better placed now to withstand competitive pressures, economic and other external shocks which as we know only too well can impact severely on the volatile, cyclical aviation sector.
Indications are that the aviation market is again becoming increasingly difficult as shown by the profit warnings issued by Ryanair in January and the recent demise of Jetmagic. These developments demonstrate the need for Aer Lingus to continue its efforts to cut costs in order to be competitive. In addition, the aviation industry both globally and nationally has changed significantly in the past ten years, particularly in Europe. Further and ongoing change is inevitable and some of this will be driven by developments in the EU-US open skies talks.
It is clear that in this constantly changing and challenging environment, Aer Lingus must have the full range of tools including maximum funding flexibility to plan effectively so that it can profitably develop its brand and respond quickly and effectively to sectoral changes and other pressures and developments. In the light of the continuing turnaround in the company's finances and the continually changing environment, last July, the Minister asked the chairman of Aer Lingus to examine and report back on the future options for the company. The chairman furnished this report to the Minister at a meeting on 16 September 2003. The company's view is that a private sector investment process should be initiated without delay. The Minister also commissioned an independent corporate finance adviser to examine the Aer Lingus report, and in summary he has supported the case made by the chairman in his report.
Let me make it perfectly clear that no decision has been taken by Government on the future of Aer Lingus. The Minister is giving careful consideration to the reports and will be bringing the Aer Lingus view, together with his own position, to Cabinet in the near future. The Minister has stressed on a number of occasions that it would be remiss of him not to look at all the options for the future of the airline, given the nature of the sector and the history of the airline. We cannot forget that this airline has been close to collapse twice in the past ten years and we must ensure that a third crisis does not arise.
It is the Government's wish that Aer Lingus continues to make a significant and valuable contribution to the economic and tourism development of the country. As I said earlier, it can only do this if it can compete successfully, operate profitably and has access to a variety of funding sources to facilitate growth. The issue for consideration by Government is whether Aer Lingus can do this better in private or public ownership and if there are vital strategic matters which would influence that choice. It is now time, therefore, to examine all the options and provide some certainty to management and staff so that they can concentrate on developing and growing the airline. It is opportune to examine those options now rather than to wait for the next downturn or crisis to force matters to a head.
A key issue to be considered is the Government and EU position on further equity injections into Aer Lingus. The State cannot invest under EU rules when the airline is in crisis and it would be very difficult to justify injecting scarce Exchequer funds into a profitable Aer Lingus when there are many other competing and more deserving priorities which depend on State resources.
I am very aware of the concerns about strategic issues in the context of the State exiting from ownership of Aer Lingus. These concerns relate to the Aer Lingus brand, slots at Heathrow and the commitment of any new owners of Aer Lingus to regional development in Ireland. I wish to assure the House that all these issues will be addressed by the Minister in the context of any recommendations to Government on the future of Aer Lingus.
I now turn to the main provision of the Bill. Section 1 is the definitions section which is self-explanatory. Section 2 and the Schedule provide for the repeal of provisions. Section 3 provides for the sale of some or all of the State's share in the airline. Provision is also made that any funds received in respect of the sale or disposal of the State's shareholding in the company will be paid into and disposed of for the benefit of the Exchequer. The section also provides that the Minister for Finance may not dispose of any shares in the company without the general principles of the disposal being laid before and approved by Dáil Éireann. This restriction will not apply to the issue of shares to employee shareholding scheme as set out in section 7. Section 4 makes provision for Aer Lingus to issue and sell new shares.
The provisions of section 5 allow the Minister for Finance to enter into one or more agreements in connection with the sale of shares in the airline. Such agreements may include provisions customarily contained in a shareholders' or underwriting agreement. To facilitate ESOT board representation and, if necessary, third party board representation, section 6 provides for the full or partial disapplication from the company of the worker participation Acts, the retirement of directors upon such disapplication and the power of the Minister to appoint new directors to fill vacancies so created. The overall number of directors does not change.
Section 7 provides for employee shareholding schemes and their acquisition of shares in the company. Section 8 provides for an exemption from section 60 of the Companies Act. Section 9 is an enabling provision. It provides that Aer Lingus may establish a superannuation scheme for its employees and former employees. After the legislation is enacted, it will be a matter for Aer Lingus to decide if and when a new pension scheme or schemes will be established. The terms of any scheme or schemes will be a matter for negotiation with unions.
Section 10 is a standard provision which addresses the expenses of the Minister for Finance and the Minister for Transport. Section 11 provides for the repayment to the Exchequer of a loan and outstanding interest by Aerlinte and section 12 provides for the disapplication of certain Acts to Aer Lingus. Section 13 contains the Short Title and commencement provisions. In addition, it provides for the repeal of provisions, in whole or in part and on different days, in the existing legislation governing Aer Lingus. I commend the Bill to the House.