The Aer Lingus unions have named their price as negotiations on the restructuring package for the airline enter their last week. The staff want a 30 per cent stake in the company in return for agreeing a deal that is to be put to a vote by December 7th.
If the situation at the national carrier were not so grave it would be tempting just to dismiss the suggestion as a crazy carpetbagging exercise based on the recent takeover of Eircom by Valentia, where the Eircom Employee Share Ownership Trust has secured a 30 per cent stake. The Aer Lingus unions' reasoning would not appear to go much deeper than: "If they got 30 per cent then so should we."
Eircom, of course, is not Aer Lingus. US leveraged buyout funds were falling over themselves to lend people money to buy the former Telecom ╔ireann, while the national airline has no suitors.
As a result, the Eircom ESOT was able to use the pivotal position that its 14.9 per cent conferred to extract a very attractive deal from Sir Anthony O'Reilly and the other new owners as the price of its support.
This may all be true, but in some ways the staff of Aer Lingus probably have a greater right to a 30 per cent stake in their company than do their counterparts in Eircom. If you look back at what has been going on at Eircom over the more than two years since its flotation, it is hard to see exactly what the Eircom staff did in return for their original 14.9 per cent stake.
Eircom staff already had 5 per cent at the time of the flotation in July and got another 9.9 per cent in exchange for £90 million (€114 million) in cash and concession of pensions and work practices. On the day after the flotation the 15 per cent stake was worth more than £1 billion, and despite the "transformation agreement" Eircom is still massively overmanned and the new owners are understood to be looking for 3,000 redundancies.
In addition, the 2,000 or so staff remaining from Department of Post and Telegraph days who were guaranteed jobs for life still have that guarantee. The Eircom ESOT deal had as much, if not more, to do with buying union support for the Government's flotation plan as it did with any productivity gains.
Contrast Eircom with Aer Lingus, where 2,026 out of 6,226 jobs are to go immediately and operations are being cut back by 25 per cent. It does not require too much analysis to conclude that the remaining two thirds of the workforce will be expected to carry out three quarters of their original workload.
This is something along the lines of a 20 per cent increase in productivity, and SIPTU points out that when you capitalise the gain to the company, it is worth considerably more than the 9.9 per cent of Aer Lingus that the Government is offering. Of course, this depends on which type of fuzzy maths you are using - because productivity gains do not lend themselves to exact valuations. SIPTU's point is well made none the less.
The Government, needless to say, has a number of strong counter- arguments. The first is that the precedent for ESOTs was set by the Eircom deal and it has been adhered to by the State, at not inconsiderable cost, for subsequent privatisations including ICC Bank and Irish National Petroleum. It would see it as an act of bad faith by the trade union movement to try and break with precedent in the case of Aer Lingus.
More importantly, the Government has said that it wants to retain 51 per cent of Aer Lingus. It argues that if the unions get 30 per cent, this will leave only 19 per cent to be sold to a new investor. A stake of this magnitude would not be very attractive to investors and neither would it raise enough money to fund the restructuring, the Government says.
The problem with this argument is that the State has not really advanced a convincing case for why it must retain 51 per cent of the airline. The bilateral aviation agreement between Ireland and the US which allows Aer Lingus to fly the Atlantic requires that the airline be Irish-owned. But this only means that the majority of the shares should be held by Irish entities and not that Aer Lingus be a State company. An Aer Lingus ESOT would fit the bill perfectly as an Irish entity.
The main reason advanced by Department officials earlier this month - when the plan to seek new investors was announced - was that the State needed to retain the majority shareholding in order to reassure the unions.
This does not make much sense, but if it really is the case, then the unions have played right into the Government's hands with the demand for a 30 per cent stake.
The Government can presumably make a larger stake for the unions conditional on their support for the Government being allowed to sell as much of the airline as it needs.
An agreement along these lines would greatly strengthen the hand of NCB Corporate Finance, which is out beating the bushes for investors.
It would appear to have had a few nibbles, but most of them are conditional on the restructuring deal being put to bed. Anyone buying into Aer Lingus would be much happier doing so in the knowledge that not only was the package agreed, but that there was no limit to the stake it could acquire.
Similarly, there would be no future ESOT veto over a subsequent flotation or trade sale. This has attractions for the Government also.
The Aer Lingus unions can make a strong case for why they should get more than 15 per cent of the company. A 30 per cent stake is probably only an opening gambit in the horse trading that will climax this week.
But don't be surprised if the staff get 20 per cent, particularly if they point out that despite its apparent good intentions, the Government has failed - because of the perfidious European Commission - to do anything for Aer Lingus staff, who represent a very significant political constituency in North Dublin, Shannon and Cork. A few extra shares in Aer Lingus might seem like a reasonable trade for a couple of Dβil seats.
jmcmanus@irish-times.ie
