The former Merrill Lynch financier who led the Telecom Éireann flotation has been appointed by the Government to take a senior position on the team that will sell Aer Lingus. Russell Chambers is now with UBS, the Swiss-owned bank selected with AIB to advise the Government on the sale of the State-owned airline.
While initially considered a huge success from the Government's perspective the sale of Eircom in 1999 saw some 500,000 small shareholders out of pocket, when the shares collapsed in 2000.
The appointment of the team to carry out the politically sensitive Aer Lingus transaction came three days before the arrival of the new Aer Lingus chief executive Dermot Mannion, who starts work next Monday. Dublin solicitors William Fry and London firm Freshfields Bruckhaus Deringer will handle the legal side of the sale, which will take up about one-third of the advisory fees.
The selection of UBS is believed to have prompted some surprise in corporate finance circles. The bank beat off competition from Merrill Lynch, which opened a back office in Dublin last year, and from Goldman Sachs, which advised the Government on the strategic choices for Aer Lingus before the Cabinet decided to push ahead with the sale option.
AIB, which partnered Merrill Lynch in the Eircom flotation, was always seen as favourite in the race to take the Irish side of the advisory team. An IBI-Davy approach was ruled out because Davy is broker to Ryanair. Merrion Capital and NCB Stockbrokers did not make the shortlist.
While Minister for Transport Martin Cullen is keen to advance the sale process quickly, senior business and political sources believe there are a number of major obstacles to any early sale. The biggest of these is the likelihood that market conditions will not favour a partial flotation or trade sale until next year at the earliest, by which stage the Coalition will be in the lead-in to a general election which must take place by May 2007.
Crucial here is the stance of Taoiseach Bertie Ahern, who has shown no appetite for a sale and who is reluctant to create any political problems for Fianna Fáil in north Dublin before the election. The issue has caused tension within the Coalition, with Tánaiste Mary Harney strongly in favour of the sale option.
Related to the timing question is the fact that Mr Mannion will need time to establish his team's credentials in the market before any sale. Also an industrial relations battle with cabin crew is still unresolved. Rising fuel costs, and the failure to implement new work practices are eating into profit margins at the airline, which is likely to undershoot its profit target significantly. Industry sources expect a profit this year in the region of €50 million, less than half the target.
But after the Government cancelled an Aer Lingus flotation plan in 2001, some observers believe it will be reluctant to signal a sale for a second time and not follow through with the process. In a statement yesterday, Mr Cullen made a point of saying that the UBS-AIB team will advise him and Minister for Finance Brian Cowen on the "size, type and timing" of the sale, and execute the transaction.
With a partial flotation already mooted by Goldman Sachs as the best way forward, the team will be asked to present a plan to Government by October-November in advance of a Cabinet decision by Christmas.
Mr Chambers will be assisted at UBS by Melanie Gee. Colm Doherty and John O'Donnell of AIB Capital Markets will be the principals for AIB. Owen O'Connell will act for William Fry and Julian Makin will act for Freshfields.
