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Dáil Éireann díospóireacht -
Wednesday, 12 Mar 1997

Vol. 476 No. 3

Written Answers. - Aer Lingus Development.

Ivor Callely

Ceist:

24 Mr. Callely asked the Minister for Transport, Energy and Communications if he will give details of current proposals or submissions, if any, on Aer Lingus and TEAM Aer Lingus which are being considered by his Department; the likely development of our national airline over the next five years; and if he will make a statement on the matter. [6816/97]

Ivor Callely

Ceist:

170 Mr. Callely asked the Minister for Transport, Energy and Communications his views on the issue of a strategic alliance between Aer Lingus and any other airline; and if he will make a statement on the matter. [6950/97]

I propose to take Questions Nos. 24 and 170 together.

The Deputy will appreciate that the day-to-day operations of the Aer Lingus group are the responsibility of the board and management of the group. However, my Department maintains close contact with Aer Lingus in order to ensure that the Department is kept informed of the commercial progress of the group. From time to time, the Aer Lingus group formally requests the approval of the shareholder to significant capital investments and other major business initiatives. There are no such formal requests currently under consideration by my Department.

The last such request was in connection with the acquisition of a fifth airbus A330 which I approved on 10 December 1996.

As I indicated to the House last month, Aer Lingus has only recently emerged from a financial crisis which, if it had not been satisfactorily addressed, would have led to the demise of the airline. A restructuring programme covering the period 1993-95, supported by Government equity of £175 million, was implemented which was designed to save the company in the short-term and to alter its commercial outlook in the longer term.

Successful implementation of the restructuring programme required radical changes in Aer Lingus. Substantial cost savings were achieved and changes in work practices and employment were implemented.

The achievement of the objectives of the restructuring programme resulted in the Aer Lingus group returning an operating profit of nearly £50 million, and a net profit in excess of £15 million, in the year ended 31 December 1995. I am aware that the Aer Lingus group performed satisfactorily in 1996.

The coming years will be a testing period for the Aer Lingus group. The position of the Government, and the European Commission, is that further State aid for Aer Lingus is ruled out. The strongest possible commercial focus within the Aer Lingus group is, therefore, essential. While progress has been made, there is a risk that, unless the commercial imperative continues to be accepted throughout the whole group, it will be unable to control its cost base sufficiently and adapt its commercial strategies so as to withstand increasing competitive pressures, particularly when compounded by the next cyclical downturn in the aviation industry.
I cannot stress enough, not withstanding the recent performance of the group, that the only guarantee for maintaining a financially sound group is to adopt to market realities.
In my Department's second statement of strategy, which was launched earlier today, two key strategies have been identified against the backdrop of the many challenges facing the group as we approach the 21st century.
The board of the Aer Lingus group is being mandated to continue to operate in accordance with strict commercial criteria and to ensure that, within a three to five year timescale, the operational resources employed by the group and the commercial results achieved, including the return to the shareholder, are such that they benchmark favourably with any comparable private sector airlines against which they compete.
The board is being mandated to explore the possibilities of entering into a major strategic alliance, with or without the transfer of equity, and to submit proposals to the shareholder by the end of 1997. The Government, as shareholder, will seriously consider any such proposals on their merits.
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