Aer Lingus Bill 2003: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

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.

I thank the Minister of State for a useful explanatory speech on a complex Bill. While I was an enthusiastic advocate of privatisation before I entered the House, I am lukewarm on the issue having witnessed the Eircom debacle. I have reason to be cautious as we are not being provided with a full picture or a master plan. While the contents of the Minister of State's speech are fine in theory, the real test will be the manner in which the privatisation of Aer Lingus is implemented.

The most significant elements of the Bill are the provisions in sections 3 and 7 which deal with the issue of shares. On later Stages, these are the sections on which we will be focusing our attention. It is worth pointing out that more than 500,000 Eircom shareholders saw the stock market value of their shares fall by over a third. When Eircom is refloated later this year, 120 former managers will become instant millionaires. One cannot blame the public for being cynical about privatisation. I hope the Government has learned from events surrounding the Eircom flotation which obviously have huge implications for the privatisation of Aer Lingus. Eircom management shares alone will be worth nearly €245 million and each manager will receive between €2 million and €2.3 million in share offerings. Against that backdrop, we should proceed with caution.

On the other hand, we must examine and learn from the mistakes made by other State-owned airlines such as Sabena and Swissair. These airlines failed to learn from Aer Lingus and are no longer in existence. I was pleased to hear the Minister of State acknowledge in his speech the huge effort made by Aer Lingus employees over the past 12 years, from the Cahill plan to the 2001-2 survival plan which followed the 11 September 2001 tragedies. Those efforts have continued in the current round of PPF talks. The employees have made huge sacrifices from pay freezes to less time off work and they should be recognised for having done so.

Fine Gael has a fine record in this area. In 1985, the late Jim Mitchell, the then Minister with responsibility in this area, allowed Ryanair to begin operating. Only for that, we might have no airline in Ireland now. Ireland's difficulty, uniquely within Europe, is that it is an island nation. I hope that in 30 years time, we can look back on the privatisation of Aer Lingus as a job well done rather than as an effort only half-considered in the Government's haste to dispose of a possible burden.

The Minister of State is correct to say the current profitability of Aer Lingus makes this an opportune time to examine the issue. The significant turnaround in the airline's fortunes in the last few years is remarkable. We do not want to find ourselves forced to sell the company in less favourable circumstances if, God forbid, it encounters serious difficulties. It concerns many people that no plan has been suggested for Aer Lingus. While the Minister for Transport, Deputy Brennan, indicated in the Dáil that he would bring forward a discussion document on the sale of Aer Lingus and guaranteed it would have to come before the House for approval, the Government's large majority is grounds for caution. Ultimately, the Government will get its own way. Nevertheless, the commitment to bring the plan forward for discussion is a welcome step.

It is worth noting that Aer Lingus staff numbers have decreased by nearly 2,000 over the past few years. I am cynical about the recent call by Mr. Willie Walsh for 80 redundancies among pilots. He seems to be off-loading as much of the company as possible and we should ask if he is preparing it for privatisation much more quickly than we think. I wonder where Mr. Walsh himself will end up on the far side of privatisation. It will be interesting to see.

He will be fine.

I am sure he will be looked after.

The Minister of State said the money raised through the privatisation of Aer Lingus would go back to the Exchequer. Can he indicate where the money will end up? Ultimately, that is the $1 million question. Where is the guarantee the money will be used for the right causes?

It will be spent on the Carlow bypass.

That is the danger. Initially, the money invested in Aer Lingus came from taxpayers and we must ensure that taxpayers receive the return on their wise investment.

An issue of concern relates to the share rights of employees leaving Aer Lingus between 1 December 2003 and 31 March 2004. As the Minister of State is aware, the ESOP arrangement presupposed the passage of the legislation through the Houses more quickly than has been the case. There is a precedent involving the ESB in respect of which ESOP discussions began in 1996 but only concluded in 2000. The results formed part of the Electricity (Supply) (Amendment) Act 2001. Due to the delay between the agreement of the term sheet and the coming into force of the Act, a number of staff who would otherwise have qualified for participation in the ESOP had left employment in the board. To accommodate these staff members, the Act was passed in a form which allowed them to participate. I hope a similar arrangement can be put in place in the case of Aer Lingus. I will table an amendment on Committee Stage to ensure that employees who left Aer Lingus recently are not disadvantaged due to a delay in the legislative process.

Can the Minister of State clarify the status of the Heathrow landing slots? If privatisation is sanctioned, a very attractive feature of Aer Lingus will be its landing slots. BA has been suggested as a possible bidder for Aer Lingus, although that might not be true. How do we secure the landing slots for future use and ensure that the company which takes over Aer Lingus does not transfer them to another airline?

To conclude, Fine Gael welcomes the Bill broadly while urging that we proceed with caution. I will not refer to Shannon Airport where there are major issues as my colleague Senator Higgins will refer to it. Deputy Naughten referred to the break-up of Aer Rianta in the Dáil. I am aware the break-up of Aer Rianta is linked to the Bill. I urge the Minister to take into account the different circumstances in Shannon. Recent reports indicate that Shannon is losing routes but may be gaining in other areas. Dublin Airport is very attractive and is the main profit making airport. The danger with privatisation is that shareholders will ultimately look for profit. That could have knock-on consequences for other airports that may not be profitable. We will have to ensure an even balance.

I join with my colleagues in welcoming the Minister of State to the House on what is an important Bill which is technical in nature. I understand a previous Bill was passed in a previous Dáil and was brought through the House by the current Leader of the House, Senator O'Rourke.

The Bill will give effect to the changing role of the national carrier in our modern economy. The economy has changed and there have been many changes in the aviation sector. Previously, the ethos was for the national carrier to be part of providing for the national interest. That has changed from a position of providing access as a service rather than facilitating a desire to travel to this country. There is no doubt Aer Lingus created that demand in the early stages. It was very much part of developing Ireland as a tourism and business destination.

In light of the many advances, growth in world aviation has seen many changes. There is less of a need for Aer Lingus to focus on the national interest component. That is clear by virtue of the demand that now exists for travel to Ireland, a demand created by Aer Lingus. It is obvious by virtue of the many other airlines that travel to Ireland and provide access, particularly on the transatlantic market, that great credit is due to Aer Lingus which was part of pioneering the routes across the Atlantic and in developing what has become a large market in recent decades.

The changes in EU rules preclude the Government from providing subvention to Aer Lingus. That forms the backdrop to the Bill. It will no longer be possible for the Government to provide Exchequer funding to the airline in crisis. We saw how difficult that was when the airline experienced difficulties associated with creating a restructuring plan without the capacity to revert to the Exchequer. The purpose of this legislation is to provide for a viable future for the airline. It needs to change the focus which was initially targeted at the national interest. That need is no longer as prevalent, but there is a need to develop the airline and ensure the future viability of not only existing jobs, but to build and grow a company that will develop into an international success.

The transition has been painful on many occasions, moving from that ethos of national interest to being focused more on profitability and the delivery of a service. There has been a number of recent crises of which we are all aware. The Government has been involved on all those occasions. I refer to the Cahill plan and the more recent survival plan the effects of which are going through now. The principal reason for that was the weak management, much of which was based on the fact that there was a comfort zone associated with the capacity to revert to the Exchequer or to the Minister for Finance to be bailed out. That has changed as a result of EU legislation in the aviation area. It means airlines no longer have that comfort zone. Many of us were surprised to see the demise of Swissair and Sabena during the past two years. We should keep those in mind when we talk about Aer Lingus because those two airlines were synonymous with their nation state, as Aer Lingus is with Ireland and yet under the new rules they were unable to survive and fell by the wayside. This legislation is critically important from that perspective to ensure we do not see the demise of Aer Lingus in any future uncertainty in the economics of the aviation sector.

It has been clear for some time that if Aer Lingus is to respond and take advantage of opportunities in the world market it needs to have access to capital. Aer Lingus is competing with some well-financed airlines not only throughout the world, but in Ireland. It is competing with Ryanair, a well-financed operation, which has the capacity to change direction and business model because of its access to finance. As Aer Lingus is State owned and the Government is precluded under EU legislation from putting significance finance into it, it is important that whatever decisions are ultimately taken by the Government will allow it to compete on an even footing with its many other competitors. The Bill provides for this and at some point for the disposal of shares, whether in whole or in part. I am happy to note in his contribution that the Minister of State identified the need for regional development, under whatever provisions are introduced, to see the disposal of these shares.

Another important provision concerns ESOP. It is important to recognise the efforts of workers in turning around the company. That is and has been a critical component of the success and the renewed development of the airline. I am pleased their efforts are being rewarded.

I agree with Senator Browne concerning the difficulties for those who have left or are in the process of leaving. There is a real issue here which perhaps the Minister of State will address at a later stage. I am not sure how it might be addressed. Senator Browne said there is a precedent in the ESB, although it concerns a different Department. If the principle could be applied in this case it would be welcome. I have been contacted as I am sure my colleagues have been, particularly by those who have been interested in voluntary redundancy. Following an announcement last week by the company there is a request for 104 redundancies at the station in Shannon. Many of those I spoke with during the weekend were concerned because the timeline for these redundancies may not dovetail with the passage of the legislation. Certainly it will be a problem for Aer Lingus. I spoke with the chief executive this morning who indicated that the redundancies requested are voluntary in nature. There will be a real difficulty if the legislation cannot be passed in time to dovetail with that timeline. Perhaps the Minister of State will say if the Bill can be got through a little quicker.

I come from County Clare and the announcement of those redundancies is disappointing for the mid-west for a number of reasons. Predominantly, it is disappointing because it seems to give credence to an often stated line that Aer Lingus no longer has an interest in regional development. I am heartened that the Minister has indicated this will continue to be a part of the operation of Aer Lingus. It is difficult to force Aer Lingus on this matter when one considers the focus is now on profitability and maintaining a viable operation in a difficult economic environment. While the national interest does not have the same importance, there is a real need for balanced regional development, a central plank of Government policy, and a need to ensure that air access to the mid-west is maintained.

We often hear of the BMW region, a so-called underprivileged region in terms of investment. However, a recent IBEC report suggests that the level of foreign direct investment and job creation in the mid-west has deteriorated significantly in recent years. While IBEC would attribute this to a number of factors, the continued provision of air access, particularly on the transatlantic route, will be an important factor in trying to stem that decline and promote growth.

There is a vital need to generate balanced development at regional level. Air access is one of the key factors in this regard not just from a business, but a tourism perspective. Recognising the change in airline culture, it is important to take stock of another component involved in regional development, namely airport infrastructure. Much work is going on behind the scenes to resolve the break-up of Aer Rianta and set Shannon Airport apart as an individual airport with its own board of management and its own focus, control and marketing operation.

It must be a function of the airports to attract competition into this environment. If Aer Lingus's focus has changed, a plank of Government policy to ensure continued development of the region must be to provide support to the airport's structure. I have for some time supported the concept of cutting free the airport board at Shannon from the clutches of Aer Rianta. I would welcome the passage of this legislation as soon as possible, notwithstanding the difficulties that currently exist.

Another element which has potentially positive implications for Aer Lingus is the open skies policy, although it has potentially negative implications for Shannon, the mid-west and west. A period of great change is being experienced and Aer Lingus no longer has a national interest ethos. The break-up of Aer Rianta and the proposed open skies between the EU and US will put a strain on the mid-west and west. It will be important, whatever discussions take place between the EU and US, that some type of derogation or a phasing in period, of whatever length, is part of any changes envisaged.

Other critical elements for the future of the mid-west, given the change of focus of Aer Lingus, will be road and rail access. There have been advances in this regard, particularly in the context of the Ennis bypass and the planning associated with the fourth river crossing in Limerick city. Some upgrades are obviously needed, in particular regarding road access from Galway to Shannon, and also in providing a rail link between the main Ennis-Limerick line and Shannon. These critical pieces of the infrastructure jigsaw will ensure the mid-west develops to its full potential along the lines of Government policy on balanced regional development.

I acknowledge the tremendous recent success of Aer Lingus. As with all good things, this has been brought about by necessity — the necessity to survive. Events such as 11 September 2001, foot and mouth disease and SARS have spurred management into a course of action which has resulted not just in the provision of a quick-fix solution to the problem that existed, but a change in the mindset and foundation upon which the airline is based. This, therefore, puts it in a much stronger position for the future.

The strategic decision to change the business model was the most important element in this regard. There is no doubt that the involvement of workers in terms of pay restraint and changes in working conditions was of critical importance. Nonetheless, the change to the hybrid business model of low fares together with good delivery of service has been critical. It is worth putting on record the tremendous work of the management team and, in particular, the chief executive officer, Mr. Willie Walsh, in devising and delivering that strategy over recent months. The disposal of the shares in the airline obviously will be a matter for the Minister for Finance in consultation with the Minister for Transport and his Department. Obviously, the debate will involve some discussion concerning whether it be an IPO or trade sale.

I am particularly concerned in regard to the consolidation of airlines. There is real concern that if a number of the larger airlines buy up the smaller airlines, only a small number of carriers will operate between the US and Europe through perhaps four or five hubs in Europe. This may ultimately lead to a situation in which there is no direct access from Ireland to the US, which would be of great concern to all. I am sure the Minister will consider these matters.

I wish to share my time with Senator Ross, by agreement.

Although not with his views.

Is that agreed? Agreed.

I welcome the Bill. I remember the dark days of the last quarter of 2001. I know what went on at the airport and in Government. It looked as if Aer Lingus would go down, although that was not for want of support. It is important to remember that the Government was prepared to put money into Aer Lingus but that was not allowed because of European competition legislation. While President Bush put billions of dollars into supporting American airlines, we could not do that, although I believe the French Government found ways to do so. We had to watch as Swissair and Sabena went out of business.

I listened to Senator Dooley giving credit to the Aer Lingus chief executive officer. While I will not take from the CEO in any way, those who put their blood on the line were the unions and workers at Aer Lingus. It was a very difficult time. Although Senator Ross might say this differently, if ever there was a precise articulation of the benefits of partnerships, it was in the saving of Aer Lingus.

A number of measures were needed to turn Aer Lingus around. There were three significant parts to the plan. The first was the idea of a complete revolution in work practices, routines and the system in which workers contributed their labour, skill and expertise, at all levels. The second part was painful, if one considers the situation three years ago, in that the workers had to forego the PPF pay increase due at that time. The third and even more painful part was that workers had to agree to a significant level of redundancies. These elements were the basis of the plan.

As part of the negotiations, it was agreed that the foregone pay increase would pay for the workers to buy into the share options scheme. Everybody agreed this was a fair way to do business. It rewarded labour, it was part of the profit-sharing that the Government was pushing and we made it work at the time. The workers bought into that at great pains to themselves at a time when some people were saying the company was going under and that the scheme would not work, but they made it work.

It was agreed that the share option scheme would come into operation in October last year, when the scheme would be signed, sealed and delivered. However, it was slow work getting the legislation through, as it got caught up with the budget. It did not reach the Houses until after the budget and took a while to go through the Dáil. At the very earliest it will leave the Seanad next week.

Section 7 gives the company power to issue shares to employees. However, the redundancies have kicked in already, so in effect those who are about to leave or who have left, but who have paid for their shares, are technically not eligible to get them because they are no longer employees. That is a technical point but under the legislation the company does not have the authority to issue shares to them if they are no longer employees. Senator Browne and Senator Dooley mentioned this issue and Senator Ross and I have already tabled an amendment dealing with the matter.

The circumstances were the same with the ESB. Instead of stating that the company has the power to issue shares, according to section 7, the Minister should include an enabling clause stating the company not only has that power but that it is deemed always to have had the power to issue shares. In other words, the company could have issued shares to the people concerned previously.

The Minister should accept that amendment, which is tabled on the basis that a similar situation has already been dealt with in this way in the ESB legislation. The wording of the amendment Senator Ross and I submitted follows the wording in the previous case precisely. No one is trying to pull a fast one, nor is the Department or Aer Lingus trying to deprive these people. They have been caught by time. The shutter was pulled down before we had time to place the bet. The Department acknowledged that fact and senior Aer Lingus human resources officials have also acknowledged that this must be addressed. This minor amendment is the only one being tabled from these benches and it should have the support of the House. I ask the Minister to accept it or to bring forward a provision with similar wording. I hope he is open to dealing with this equitably in fairness to all concerned. Can we agree on that?

I flag my support for Senator O'Toole's amendment and I ask the Minister to consult his officials before this amendment comes up for debate next week. Senator Dooley signalled some sympathy at least with the amendment, which is significant for his side, while Senator Browne also supported it. It would be appropriate if the Minister accepted that this amendment arises out of all-party support in the House. It is only equitable to include those workers who have been left out of the ESOP. This appears to have happened more by accident than design and it would be very unfair if they were discriminated against, both in this issue itself and in them being treated differently from ESB workers. They would have a real grievance.

Like most Senators I support this Bill in principle. I have to support it because I think I supported it in 2000 and I better do so again. It tells me much about Aer Lingus in the past and there are lessons in that, but obviously the main thrust of the Bill is the privatisation of Aer Lingus. There is a reluctance to spell that out in such brutal terms in the Minister's speech, but I welcome the fact that Aer Lingus should be privatised. There are lessons for us in the need to do it.

The consequence of 11 September 2001 was the exposure of the vulnerability of an airline like Aer Lingus and the fact that a semi-State body, fully run and owned by the Government, was not working in a commercial environment. We only saw the refusal by the Government to inject funds in Aer Lingus at a time of crisis thanks to EU rules. I do not doubt that if those EU rules did not exist the Government would have injected more money into Aer Lingus and we would have had the same inefficiencies and difficulties. We would have had the same airline and the same problems we had in its previous existence.

In some ways we have to be grateful that the Government was not free to operate in a way which was politically expedient. The Government should be grateful for that also, but it had to do something about Aer Lingus very quickly or close it down. I agree with the previous speakers that what was done was commendable. If there is a case for ESOPs, then this is a much stronger case than those which were made in the past.

There is no doubt that there were 2,000 redundancies and all sorts of changes. The antediluvian practices carried on in Aer Lingus in the past had to stop and the only way those could be changed was by facing bankruptcy — by facing doomsday. They would not be changed voluntarily, nor were they, but there was an agreement. A gun was put to people's heads and agreement was reached: if people went along with the survival plan, they would be given shares.

I have reservations about this sort of share arrangement but in order for the airline to survive it might have been necessary in this case. An identical number of shares is being issued — 14.9% is the amount in every case — but there is no comparison between this and other semi-State bodies which have come to similar agreements. Aer Lingus was in crisis, something had to be done both politically and commercially and this was the deal done, like it or not. In other situations, like ACC and ICC, there was no crisis, yet exactly the same deal was done, with 14.9% of shares. In those cases, and the Eircom case, there is very little evidence that there were many changes in work practices. It was just convenient for the Government of the time, to get themselves out of banking, to hand over 14.9% of shares to the workforce of those companies. However the same justification does not exist in those cases.

We should note the Minister said that the issue for consideration by Government is whether Aer Lingus can do better in private or in public ownership and whether there are any vital strategic matters which would influence that choice.

I have two reservations in this regard because this may be a case of privatisation with serious strings attached. When the Minister of State refers to "strategic choice", I assume he is referring to the national interest once again. I do not believe there is any longer a national interest in holding on to a national airline. We will not become marooned on some strange island because flights will still come in from other airlines, regardless of whether we fly.

I also have difficulties with the Minister of State's statement that he is

aware of 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.

If the Minister of State sends out those signals while trying to sell Aer Lingus, the Government will find it difficult to get a decent price for the company. If the Government is telling prospective buyers they must fly into Cork, Shannon and other airports, few will be interested. These issues of strategic interest will put off buyers.

The first thing which will put off an overseas airline interested in buying is the 14.9%. That is not a popular thing to say, but it will do so. The second thing will be if the Government states there is a strategic interest in regional development. Regional development is a broad ship, which means the airline will have to fly to places designated by the Government. It will find it difficult to get competing buyers or get value if it does that. It will find, rightly or wrongly, that it is selling Aer Lingus at a discount because other airlines will not have demanded such stringent conditions on the sale.

The PSOs are already doing that.

All right.

The Senator does not like workers owning the company.

Let us get on to——

He feels he has gone far enough to the left today. The House should not worry about him.

I thought that was a major shift.

I assure the House and my constituency that I will not be seconding many of Senator O'Toole's amendments.

I was wondering what sort of lien Senator O'Toole had on the Senator.

If Aer Lingus is to be floated, we need to seriously examine the costs. In the case of the Eircom flotation, a scandalous amount of money was given to the advisers. The Government and taxpayers were ripped off by a host of advisers who were paid far too much money. I cannot, nor can anyone else, justify the €60 million in fees for work which was not particularly demanding or rewarding nor, in retrospect, was it skilful or successful. The Minister of State will remember the difficulties and the controversy which attached to the flotation of Eircom. The price was in dispute and the argument about whether it was too high or too low continues to this day.

There is no doubt the advice the Minister and the Minister of State will pay for in the case of Aer Lingus will be conflicting, arguable, highly subjective and, I would guess, not worth the sort of fees which are being paid. This is an important point which the Minister of State should bear in mind. There must be a saving for taxpayers from paying the sorts of enormous fees which are paid by the private sector for advice of dubious value.

When we talk about vital interests and Senator O'Toole's unions because, after all, the Senator speaks in this House for all the unions regularly — it is a mantle he has taken on and is welcome to——

If we only had the newspapers on our side, we would be fine.

The Senator will not be getting that for a long time, not even from the NUJ. When we talk about the role of the unions in the airports, we must remember that it was they who closed them down when Ryanair was embroiled in controversy. The unions did not show loyalty and sacrifice when it was needed and did a huge amount of damage to the image of Ireland abroad when they closed down the airport. Therefore, we cannot rely on the unions, whether the airline is under State or private ownership. There is no great loyalty attached to the State models by the unions who aspire to having made that great sacrifice. The sacrifice in question was expedient and remains so. Let us not place too much hope that they will show the same sort of loyalty in the private sector as they claim to have in the public sector.

I join with other speakers in welcoming the Minister of State to the House. We are all aware that Aer Lingus was established in 1936 and has since undergone major change, from the establishment of transatlantic services and internal flights to its recent dramatic turn around in the face of major difficulty.

As has been mentioned by other Senators, the terrorist attacks on New York and Washington DC in September 2001 were a major challenge to airlines all over the world. The airline industry went into a serious recession and Aer Lingus, like others, was badly affected in the weeks and months after the attacks — perhaps more so than bigger airlines around the world because of its size.

Under the stewardship of Mr. Willie Walsh, Aer Lingus embarked on a radical restructuring of the company and the board, management and staff at the airline need to be complimented by us all on the manner in which they have turned around the problems at a time when some of the so-called experts were telling them to walk away and close up shop.

Aer Lingus is now expanding its routes across Europe and has returned healthy profits for the past number of years. The Minister of State stated that from being on the brink of bankruptcy in late 2001, when the company registered a loss of €52.1 million, it had an operating profit of €63.8 million in 2002 and is about to publish a profit of €78.5 million for 2003. That is against the background of the war on Iraq and the SARS scare. It is, therefore, good news.

I also note from the Minister of State's speech that the airline operates 42 routes, which is the same as it had originally. Moreover, a further nine routes will be established this year, which must be welcomed by us all. The Aer Lingus Bill is another phase of the survival plan to save our national airline and it is a concrete acknowledgement of the contribution of the staff at the airline to its turn around following the events of 11 September 2001 and other crises.

As the House is aware, I am from Cavan. We do not have an airport but, thanks to the massive investment by the Department of Transport in the roads infrastructure, particularly the proposed dual carriageway from Clonee to Virginia, we will be just a little more than an hour's drive from Dublin Airport. Any of us who have had occasion to travel with Aer Lingus, particularly on transatlantic flights, are justly proud of that company. My colleague, Senator Dooley, alluded to the no frills airline which I will not mention here. It is worth paying an extra few euros to receive the quality of service Aer Lingus provides on its flights, especially its transatlantic flights, of which I have most knowledge. That quality should be maintained as it is to the benefit of the company, even if its services are slightly more expensive than some of the other larger airlines.

Senator Dooley has a fear that Aer Lingus may be bought by some of the larger airlines if it is floated. I think his fear that four or five of the big airline companies could act as a cartel is justified and it is conceivable that we in Ireland could end up with no direct access to North America. We might have to go via London or Paris and I think that would be a sad day, especially since 2,000 people have sacrificed their jobs to enable Aer Lingus to become competitive. I was glad to hear the Minister say that before any proposals to float the company are mooted, he will come before both Houses and outline his plans. It is important that that happens.

Senator Browne's fears for the company if it is floated are perhaps justified, although I would welcome a flotation if the proper safeguards are put in place. Our experience of the Eircom flotation is not a good one. First, as Senator Ross pointed out, consultants were overpaid for the work carried out. Second, having read the various commentators, I believe that the price was too high and a third of the value was wiped off within six months. This will naturally strike fear in the mind of the ordinary citizen. Some of the big institutions might move in and buy it out. However, if the ordinary citizen is given the opportunity to participate in a shares buy-out then it should be realistically priced and as little money as possible should be spent on advisers and consultants. I welcome the Bill. It is a short but effective piece of legislation and I look forward to listening to the other contributors.

I congratulate the Minister of State on his nomination as a candidate in the new North-West constituency for the Fianna Fáil Party. I know he will do us proud although, unfortunately, we will lose him as a junior Minister.

The experience of the Minister's colleague, the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Fahey, at the weekend reminded me of the Labour Party convention in Dublin a number of years ago when the then MEP, Ms Malone, was nominated in circumstances which were not too dissimilar to the nomination of Mr. Ó Neachtain MEP. We know what happened there, but that is a matter for the people of the north-west.

I am opposed to this Bill, as is my party. The ostensible purpose of the Bill is to provide for the ESOP but the real purpose is to allow the Minister to effectively sell off Aer Lingus. I am not one of those in the Labour Party who has a knee-jerk reaction against privatisation. I think there are circumstances when the private sector can do certain things better than the State sector. There are also times when there is no good strategic reason for retaining a company within the State sector. For example, when I was the finance spokesperson for the party I did not oppose the privatisation of some of the State banks such as ACC because I felt there was no longer any strategic niche being served. I wanted to make that point first to show that this is not knee-jerk reaction on my part. However, I profoundly believe that it would be a mistake and not in the strategic interests of Ireland, to privatise, sell or float Aer Lingus.

I object to the typically glib characterisation of Aer Lingus by Senator Ross. He has given the impression of a basket company populated by workers and unions who regularly bring it to its knees. The reality is that it is a company in place for nearly 70 years which has given service to the Irish people and Irish business, which has been profitable for almost all of its existence and which has received precious little financial support from the State during that time. Workers have made significant sacrifices in recent years in order to ensure the future of the company. It is a fact that in the 50 odd years of its existence from 1937 until the early 1990s, Aer Lingus received virtually no equity injection from the State at all. In the early 1990s when the Minister's party and mine were in Government, it received IR£175 million. It then ran into financial difficulties again in the aftermath of 11 September 2001, yet even in that context it did not receive any further financial assistance from the State.

I am opposed to the privatisation of Aer Lingus primarily because I do not believe that the strategic interests of this country can be guaranteed if the company passes into private hands. The trend in recent years is unmistakable, where large companies gobble up smaller ones. The trend is for large alliances to be formed between companies, some of which are national airlines and some of which are private. However, the trend is unmistakably towards consolidation. There are fewer companies around and there will be fewer around in five or ten years time. The trend within those companies and within those alliances is also clear. They are setting up hubs. It makes much more commercial sense for a particular airline or set of airlines to agree to use a particular airport as a hub, be it Amsterdam, Frankfurt or Paris. There is a significant likelihood that if Aer Lingus is sold, for example to British Airways, in a short period of time we will find ourselves a mere spoke in the wheel. We will travel to Heathrow or Manchester and from there to other destinations. It will almost certainly be in the interest of whatever airline takes over Aer Lingus to continue to fly between Britain and Ireland and perhaps to Paris and Rome. We will be back in the 1960s where Aer Lingus had a half dozen routes to the European mainland, a couple of routes across the Atlantic and very little else. Everyone will be required to go through two or three hubs or perhaps only one. That is not in Ireland's interests.

I cannot see how the argument can be made that this is in the interests of Irish tourism. We all know that direct access is very important to tourists coming here, be it from America or the European mainland. It has always fascinated me why people do not want to go to the west of Ireland. I am familiar with that part of the country as my wife is from Clare. It has always surprised me that it is not possible to bring more tourists straight to the west as they always end up travelling to that part of the country eventually. That is an aside. The point is that tourists want to go straight to Ireland and they do not want to spend half a day in Heathrow on the way over and half a day in Heathrow on the way back.

Likewise, businesses want direct access. We are spending a fortune facilitating businesses in getting quickly to the nearest airport. If we then ask them to spend a lot of time at an intermediate airport, it devalues our national airline. It is not in our strategic interest that this should happen. I would bet any money this is likely to happen.

The Minister of State referred to several other aspects of the strategic interest but I am not sure I agree with him. I note he referred to Heathrow slots. Perhaps he has some magic formula to try to retain the Heathrow slots in the strategic interest of Ireland or as a means of guaranteeing they will be used for access to Ireland. It appears this will be very difficult.

On regional development, the Minister of State rightly pointed out that this is something which can be achieved through direct subsidies. It is being done at the moment, to Aer Arann and other airlines, and it does not appear to impact one way or the other on Aer Lingus.

I want to outline why I think the arguments in favour of privatisation do not stand up. There are basically three arguments. First, it is argued that privatisation is required to get investment into the company. It is argued we need it to have the competition customers want, which reduces prices and is generally good for business, and that we need it simply because we need the money. The truth is that no matter how valuable the company is, or how important it is in terms of our strategic interest as a country, it is still only worth approximately €500 million or €600 million, which would just about pay for the Minister's savings schemes this year. It might have paid for a good part of a stadium, but it is not big beer. We could not justify the privatisation of the national airline purely on the basis that it would take in that sort of money, and we should not go down that road.

A more important issue is that of investment. Clearly it is necessary to get investment into Aer Lingus, to invest in the fleet and invest for the future in good times. Governments sometimes seek to create the impression that is not possible to do this within the context of State aid when in fact it is perfectly possible. However, one cannot bail out a State company by using State money. What happened in the early 1990s would not now be possible. It is perfectly possible, however, to use shareholder funds and Government equity to invest in the company. It would be perfectly possible for the company to receive an injection of equity from the State to improve or increase the size of its fleet. The Minister acknowledges this in his speech. He said 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. He is making it quite clear that the reason Aer Lingus is not getting an injection of the funds it needs to improve and expand its fleet is due to what he refers to as other more deserving priorities and demands on State money. This is an important point, because there is nothing illegal, improper or contrary to EU rules while Aer Lingus is in profit in making the necessary investment to provide for the future of the company.

There is a good argument for saying the company should borrow rather than depend on shareholder funds. Shareholder funds are of necessity more expensive and the return is greater to the person providing the funds. If the gearing is right — it probably is in Aer Lingus — there is a powerful argument for Aer Lingus to simply borrow on the open market in the absence of any willingness on the part of the Government to invest in it.

It is also argued that Aer Lingus must be privatised to ensure competition. This is an interesting argument, but one which does not stand up. I accept that in the airline industry, as in any other industry, competition is a good thing. The experience in this country was that Ryanair was snapping at the heels of Aer Lingus for a long time before they developed two segregated markets, which was good for the industry as a whole. It provided customers with a choice of the sort of airline they wanted and, generally speaking, it drove down prices. There is no contest anymore, but that is a good thing.

The implication of what the Minister, Deputy Brennan, is saying is that one cannot have proper competition if one company is State owned and the other is privately owned. Experience in this country does not suggest that is the case. We can look to what happens to two private companies if there is competition. Our limited experience of this is instructive. We saw what happened when, for example, GO recently tried to compete with Ryanair on one or other of the Scottish routes. Lo and behold, the guy who trumpeted the merits of competition and low fares and the availability of choice for customers, Mr. O'Leary, not only took a very aggressive predatory attitude towards GO but actually had a contingency fund. Ryanair had money set aside in the bank, ready and waiting for any other private company that would have the nerve to come in and try to compete with it. Its interest was not to ensure customers got the best possible deal when travelling to Glasgow or Edinburgh, but to get GO out of Ireland as quickly as possible, in which it succeeded. The suggestion that competition among private airlines in Ireland will in the long term benefit customers is not fair.

The truth is that the Irish market is small. There must be competition but it is likely we will have to regulate that competition in the future. The point was made in the other House that Aer Lingus chose to compete with Jetmagic out of Cork when that airline recently tried to make an impact in Cork. There are those in Cork who blame the national airline for taking what they regard as an excessively aggressive view. It may well be that it contributed in some way. However, one must look at the flip side of the coin. Competition is competition and one cannot say to the national airline that it should behave like some sort of benevolent partner when someone is threatening its potential market. The national airline must be allowed to compete in the same way as a privately owned airline.

In the past we have on occasion leaned too much on Aer Lingus. I agree with Senator Ross that there has sometimes been undue interference in its workings and management. We have seen in the past few years that when left to its own devices the partners in Aer Lingus, namely, management and workers, can forge a decent future among them. There is a lesson in that in terms of the State getting involved, namely, that we should, by and large, butt out other than setting strategic aims for the company.

I want to deal with the ESOP issue. I have a more jaundiced view of this matter than others may have. I support employee share ownership because it gives people a stake in the company for which they work. It gives them an incentive to work harder and creates an identification with the company. It frequently leads to more flexibility in the way people are willing to identify their interests with the company. It allows them to share in the company's profits. I believe in it for all these reasons and I believe these arguments hold good as much in the private sector as in the public sector. The difficulty is that I do not think ESOP is created for any of these reasons. This ESOP is created for the same reason the Eircom ESOP was created by the Leader when she was Minister of Public Enterprise six or seven years ago, which is to smooth the way to privatisation. It is, in effect, a bribe to the workforce in order to smooth the way of Aer Lingus out of the State sector. The Minister denied this in the Upper House. If he is saying the merits of ESOP stand up, why not make provision for it now? It is being paid for as a result of the sacrifices of the pay freeze which has occurred as a result of the survival plan. The ESOP should be introduced, irrespective of what happens to the company in the future.

I support the amendments signalled earlier by Senator O'Toole. The Minister detailed the progress of the ESOP negotiations during the course of his speech. During that time, hundreds of workers who participated in and contributed to the survival plan, and who in effect took the pain of that plan, left Aer Lingus. It is only reasonable and fair that they should get the benefit. There is merit in what Senator O'Toole said and it would be grossly unfair if individual workers who contributed towards the survival plan, and took much of its pain, were to be penalised simply because they have left over the past few months or couple of years.

Debate adjourned.