Controversial decisions will have to be taken on a variety of fronts, writes Emmet Oliver

According to popular myth, Irish politicians are constantly meddling in the affairs of the State-owned companies. While there have been plenty of interventionist ministers (one thinks immediately of Mary O'Rourke and Seamus Brennan), the reality is that most politicians are nervous about getting too confrontational with companies that employ thousands of staff/voters.

Yes, Ministers load down boards with their own appointees but usually these people are put there to keep the companies out of the headlines, rather than to promote radical ideas. Consequently, a sense of drift has built up in the semi-state sector over recent years. Awkward subjects are usually avoided and politicians faced with contentious decisions tend to opt for the nearest political fudge.

This traditional reluctance to tackle thorny subjects may not be possible in 2006.

Aer Lingus - at least according to official Government policy - is due to be privatised in 2006. Many observers believe that Bertie Ahern will not ultimately sanction such a move. They may be right. Nevertheless it was his Government that, back in May, stated: "A majority sale of Aer Lingus has been approved with the Government retaining a strategic State holding in the national airline."

While this is the blunt language of last May's decision, the airline's most powerful union, SIPTU, remains steadfastly opposed to the idea. Instead it favours a State holding company and, officially, it is preparing to oppose any privatisation plan. How committed the union is to such a campaign will be revealed as 2006 unfolds.

Talking to institutional investors and stockbrokers, most believe the sale will proceed, priced in a way that makes investors comfortable.

Canvassed for their opinion, industry watchers in Dublin believe there will be a window of opportunity for a sale in 2006, but considering the cyclical nature of the airline business the window could close very quickly. Ronan Reid, joint managing director of Dolmen Securities, said recently he believed it would happen in 2006 and his view is echoed by other industry observers. The airline's own chief executive Dermot Mannion believes it should happen in the third quarter.

But, unsurprisingly, all observers mention a range of caveats - terrorist attacks, surging oil prices, industrial action and, of course that old chestnut, "political difficulties".

If a sale process goes ahead, Aer Lingus is going to have to change radically. Its board will probably have to be restocked with people schooled in running quoted companies. Sean FitzPatrick of Anglo Irish Bank is probably the only one of the airline's nine current directors to fall into this category.

The company's profit performance in 2006 will also need to be solid; investors will want to see a strong earnings profile in the year when they are buying in.

With Ryanair finally throwing down the gauntlet in Dublin, Aer Lingus is going to find it hard to drive profits higher. Margins under former chief executive Willie Walsh grew from 6.7 per cent in 2002 to 11.8 per cent in 2004. But Mr Mannion will find it hard to increase this with surging fuel prices and increased competition from the low cost operator.

While the airline is not prepared to admit it publicly, there is a real sense that growing short-haul traffic is going to prove almost impossible in the future. The only solution is to offset falling short-haul returns by developing long-haul traffic. The direct service to Dubai is part of this, but opening more routes in the United States - soon to become possible under an open skies regime - is likely to prove more fruitful.

There are other clouds on the horizon. Mannion has effectively ended the head count reductions at the airline and, while this is probably a wise political move, investors are likely to demand a lower staff to passenger ratio.

The other problem is the pension fund, which most of the airline's workers are members of. As it stands, staff from the Dublin Airport Authority and SR Technics are also members. Clearly, Aer Lingus will have to de-couple its pension commitments from the fund, but how?

If the fund continues to pay out cost-of-living increases - as has been the practice - the fund is in danger of going into a deficit of more than €300 million.

Clearly, this issue will have to be resolved before any flotation. Some suggest the fund could be topped up from some of the proceeds of the sale transaction, but would this be a form of State aid?

The pension problem is also rearing its head at ESB where, strangely, it is causing more waves.

Workers at the company want to do a deal on pay, but that is impossible while the company has a €1.1 billion pension deficit. Any pay increases would only worsen this deficit, so the best the ESB workers can hope for in 2006 are lump sum payments. This is what Aer Lingus recently offered its staff.

The minister responsible for ESB, Noel Dempsey, may manage to skirt around this problem, but he will have other problems to contend with.

A report he commissioned - from Deloitte - is expected to recommend that ESB sells off or leases out several of its power stations. Will the minister be prepared to push ahead with this agenda in the face of union opposition? Probably not.

The same minister is also in charge of An Post, which in recent years has been the worst performing of the State companies.

While the ESB is able to hand over the Government dividends of €77 million, An Post has been floundering financially for several years.

The Government is again faced with an awkward decision here. Donal Curtin, the chief executive, is due to finish his three-year term during 2006 but no obvious successor comes to mind.

The next appointee will have a crucial role in getting the company back on a sustainable course. There is talk of a new banking subsidiary and the local post office may even soon host internet facilities, but one wonders whether the company will be able to weather a new era of full liberalisation which is due to take place in 2009?

Finally, there is the longest running semi-state farce in town - the new terminal at Dublin Airport. The Government went for a real political fudge here in 2005. The Dublin Airport Authority is to build and fund it, but apparently a tender competition is to be held to find someone to run it.

If the Government manages to grapple with that one in 2006, most observers will be more than surprised.

Even if they kill off the endless saga of the terminal, there are other decisions at the airport to be taken in 2006. An obvious one is the fate of the loss making Great Southern Hotel chain, which the Dublin Airport Authority is keen to dispose of in some form.

However, considering how lethargic decision making was in 2005, do not be surprised if the Government takes a pass on that one in 2006.