Aer Lingus is believed to have reduced its notional valuation by up to 40 per cent or £200 million (€254 million) because of trading difficulties.
Sources close to the company believe a fall in profits this year could diminish its value to £300 million compared with a maximum valuation last year of £500 million.
While the figures are tentative, they are said to reflect trading difficulties caused by the foot-and-mouth crisis, a downturn in the US economy, and a spate of strikes last winter.
These developments are likely to reduce this year's profits to £15 million from £60 million last year. The company's projection was £50 million, allowing for a £30 million rise in expenses because of pay claims by staff.
The Government's corporate advisers are assessing the possibility of selling the company to another airline, but a spokesman for the Minister for Public Enterprise, Ms O'Rourke, denied the Government had effectively abandoned its plan to float the company on the stock exchange.
Citing a Dail statement on May 10th in which Ms O'Rourke referred to an initial public offering "or some other method of sale", the spokesman said this merely reflected the existence of alternatives.
But he added: "The Minister has to look towards the wellbeing of Aer Lingus . . . and other options cannot be ruled out."
IMPACT, which represents Aer Lingus pilots and cabin crew, last night said a trade sale appeared to be the "worst of all possible outcomes". Its aviation official, Mr Michael Landers, said staff owned 5 per cent of the company.
"It is totally unacceptable to us that the Minister, as majority shareholder in the airline, should embark on this course without consideration of the workers' rights."
When the Government approved the disposal of the airline in December 1999, Ms O'Rourke said flotation was the best and most effective means of securing resources to replace the Aer Lingus fleet. The company's plan was to issue new shares worth £200 million to fund this replacement because further State support was not sanctioned under EU rules.
Sources close to the flotation process indicated in recent weeks that activity had virtually halted. In addition to Aer Lingus's trading difficulties, they said Eircom's poor performance would make any sale of shares to the public very difficult.
But a trade sale would present other problems. Bilateral agreements between the US and EU dictate that up to 50 per cent of Aer Lingus must be held by Irish shareholders. A move to sell the airline to a larger international operator would have to overcome that restriction. On the plus side, the airline owns valuable slots at Heathrow airport which are seen as an attractive asset.
The company's difficulties have been compounded by an investigation into two complaints of alleged sexual harassment by its chief executive, Mr Michael Foley. Mr Foley was effectively suspended two weeks ago. He will learn this morning if his High Court attempt to block the disciplinary process has been successful.
In hearings before Ms Justice Carroll yesterday, counsel for the airline said claims by Mr Foley that a number of people conspired against him were not supported by evidence.
Mr Foley has described the findings of the investigation as "perverse". He fears his dismissal on grounds of gross misconduct is imminent and wants an appeal before any further disciplinary action is taken.
