The controversies over Shannon and the threatened strike over pilots' pay in Belfast are being seen as crucial tests of Aer Lingus chief Dermot Mannion's mettle - and he's not for turning, he tells Ciarán Hancock, Business Affairs Correspondent
At about 7.30pm on Monday, the fax machine in Dermot Mannion's office at Dublin Airport cranked into action. A two-page letter carried the news he had been expecting - Aer Lingus's pilots would strike next Tuesday and Wednesday in a dispute over pay for workers at a new base in Belfast. This would disrupt the travel plans of 50,000 Aer Lingus customers and cost the company about €5 million in lost revenues.
"We'd held a meeting earlier that day with Ialpa [the Irish Airline Pilots' Association] and it didn't go terribly well, so we were expecting it," says one source close to Aer Lingus.
After a 20-minute conference call by senior management to discuss strategy and formulate contingency plans to run a skeleton service on the strike days, Mannion packed his bag and headed for his home in Howth at about 9pm. It had been another arduous day for the Aer Lingus boss in what was shaping up to be a long and difficult week for the Sligo native.
When Dermot Mannion took the reins at Aer Lingus in August 2005, senior trade union officials advised him that his first task was to restore the morale of workers. This followed the disclosure that the airline had formulated a secret plan under Willie Walsh's leadership to pressurise long-serving staff into leaving the company.
That plan was consigned to the dustbin but, with Mannion currently pushing for the implementation of changes to pay and work practices that would save the company €20 million a year, the workers' spirits have barely been lifted.
"It's fair to say that morale is as low now as it has ever been," one long-serving middle manager at Aer Lingus told The Irish Times. "It just seems to be one bad news story after another and morale is on the floor."
Morale wasn't helped by last week's announcement that Aer Lingus planned to axe the Shannon-Heathrow route, with the loss of 45 jobs. The valuable Heathrow slots are to be transferred to Belfast, where the company will base aircraft outside the Republic for the first time and launch eight new routes to European destinations.
These decisions have put Mannion on a collision course with virtually the entire midwest, where people fear being cut adrift from the outside world, and with the pilots and other unions over the rates of pay it is prepared to offer new staff in Belfast.
It is all a far cry from the culture that pervaded Emirates, the Dubai-based airline where Mannion held a senior role for the guts of two decades before coming home to pilot Aer Lingus's flotation. Emirates is one of the fastest-growing airlines in the world, owned by the ruling royal family and with a can-do attitude.
"It's fair to say that if you wanted to get something done in Emirates, you didn't have some union fella saying 'kiss my arse'," says one leading financier who has previously worked closely with Aer Lingus.
The controversies over Shannon and pilots' pay in Belfast are crucial tests of Mannion's mettle. "He's done well in very difficult circumstances so far," says one Dublin-based fund manager and Aer Lingus investor. "What he's trying to do is right for the airline - maybe he could have handled it better, but it's a tough business and it has to be run on a commercial basis. Don't forget, he has no share options waiting to vest and he could easily walk away."
While he might not have been awarded any share options at the time of the flotation, Mannion earned a healthy €982,000 in 2006, including a €260,000 performance-related bonus.
"These are chunky numbers at a time when you're asking ordinary staff to take a cut in their take-home pay and to give up some of their annual leave," says one airline analyst.
NEXT WEEK'S THREATENED strike action by pilots centres on Aer Lingus's plan to open a new base at the old Aldergrove airport in Belfast.
To Mannion, it represents a clean slate for Aer Lingus. The 30 pilots needed to operate its proposed new routes from Belfast would be offered pay and conditions in line with the local market and not pegged to those of pilots employed in the Republic. Aer Lingus says the starting pay for captains would be £73,000 (€107,400), on a par with their counterparts down south and ahead of local rates. EasyJet, by comparison, pays its captains £66,413 (€97,700).
Pilots in Belfast, however, are only being offered a defined contribution pension rather than the more cherished defined benefit ones offered in the Republic, and there are other differences in the terms and conditions.
"We have to be able to move forward to open new bases," Mannion said. "This is crucial for us, it's not a new issue. The unions have been on notice about this for a significant period of time. We now have to get on and do it."
Evan Cullen, Ialpa's chief executive, hit back, saying the company is seeking to unilaterally change a partnership agreement that was struck with the unions in advance of Aer Lingus's stock market flotation last September. "This is not the first time that they've just ignored that agreement," Cullen said. "Why enter into an agreement with us and all staff last September and never place any caveats on it? They now seem to be setting that aside."
Mannion claims that well-respected labour relations mediator Phil Flynn recommended in June that Aer Lingus should be free to establish "foreign bases" as it sees fit, and to peg pay and conditions to local market rates.
Cullen said Ialpa would seek clarification from Flynn on whether Belfast can be classed a foreign base.
Mannion has also created a storm in the midwest with his decision to move the valuable slots to Heathrow from Shannon to Belfast. Aer Lingus currently carries about 320,000 passengers a year from Shannon to London's biggest airport, and the airline admits the route is profitable.
Sources close to Aer Lingus say it can simply earn more by flying from Belfast, where its costs will be lower than in the South. With the economy in Northern Ireland also on an upward curve, the growth potential from Belfast is greater than from Shannon. This is a commercial decision, pure and simple.
Businesses, politicians and other lobby groups in the midwest have come together to fight the move, and Mannion was on the ground in the area yesterday trying to appease them.
Speaking to this paper last Sunday, Patricia McCarthy, the mayor of Clare, was strident in her views on the matter. "This decision can be reversed," she said. "These are Shannon slots, not Aer Lingus's slots, that's very clear from the company's articles of association, and we'll take legal action if necessary to protect them."
McCarthy and other local tourism representatives travelled to the United States earlier this week to promote Shannon as a gateway to Ireland.
Ryanair has joined the bandwagon, saying it will support a motion to force the company to reverse the decision. Michael O'Leary is Aer Lingus's biggest shareholder and has used the row for his own publicity purposes.
Mannion, however, cautions against people in the midwest supporting Ryanair's offer, arguing that it could have "massive implications" and actually lead to more Shannon jobs being lost or outsourced.
Ryanair has also suggested that Aer Lingus should axe its Dublin route to London Gatwick, switch those slots to Belfast and reinstate the Shannon-Heathrow routes. Given that Ryanair also flies from Dublin to Gatwick, Mannion says such a proposal smacks of "cartelism" and could be scrutinised by competition authorities. "People need to be very careful about joining the Ryanair bandwagon," he says.
McCarthy and others, including the Limerick-based Minister for Defence, Willie O'Dea, argue that Heathrow slots should be diverted from Dublin and Cork. Sources close to Aer Lingus, however, say this would be commercial suicide. The airline earns four times more profit on the Dublin-Heathrow route and twice as much from Cork as from Shannon.
Mannion will not comment on Aer Lingus's returns but insists that the airline is not for turning on its decision. "The slots have been allocated to Belfast," he says bluntly.
Two Aer Lingus slots at Heathrow are leased to British Airways and Continental Airlines, and lobby groups argue that these should be switched to Shannon. Those slots, however, are valid for use in the afternoon, a time of the day that is perfect for long-haul operators but of little value to business people wanting to travel to London in the early morning and return in the late evening.
Backing down on the Shannon decision is not really an option for Mannion. This was his call and any move by the Government to force him to reverse the decision would probably result in his resignation. "He would have no choice but to resign," says another senior fund manager in Dublin.
SOME SOURCES SUGGEST that Mannion is flying solo on these plans, although this seems unlikely. Aer Lingus chairman John Sharman told The Irish Times that Mannion "has my full support and is doing an excellent job. It's truly remarkable what's been achieved by the company since the flotation. We've got the planes, we're reducing our costs and we're expanding our routes."
It's a fair point. Aer Lingus almost went bust in the early 1990s before a major rescue plan formulated by former chairman Bernie Cahill and a cash injection from the government saved the day.
Likewise, it would have nosedived in the aftermath of 9/11 had it not been for a major restructuring of the business by former chief executive Willie Walsh, who now heads British Airways. Walsh dramatically reduced its cost base, cut jobs, axed marginally profitable routes and turned Aer Lingus into a low-cost carrier. Walsh quit the business almost three years ago after a failed attempt to lead a management buyout. Walsh was one of a long list of Aer Lingus CEOs who tried but failed to deliver an initial public offering (IPO) for the airline.
Mannion, to his credit, pulled it off, only to have the rug taken from under him by Ryanair boss Michael O'Leary, who had launched a €1.48 billion bid for Aer Lingus within a week of the company going to market. Mannion is adamant there was nothing he could do to prevent that scenario playing out. "When the shares are out there in the free market, there's not a lot you can do about it," he said. "Having our number one competitor on the share register is an irritant, but we're just getting on with our job."
Mannion is keen to play up the Aer Lingus growth story. In June, the airline signed a deal with Airbus for six new long-haul aircraft, which will be delivered in 2009. These will be used on routes to the United States.
Just a fortnight ago, the airline formally launched three new services to the US - to Washington DC, San Francisco and Orlando - under the Open Skies deal agreed between the US and the EU. "There's no doubt that America offers the best expansion opportunity for us," Mannion said.
Aer Lingus is also growing its short-haul operations. Belfast is expected to attract an additional one million customers a year, and the company is gearing up to increase its fleet of planes for short-hop trips by 50 per cent by 2012.
"Slowly but surely, we're achieving quite a lot in terms of growth and in improving efficiencies," Mannion says. Two years on, he says he has no regrets about his decision to quit his life in the Middle East for Aer Lingus. "I'm a great believer in meeting challenges head on," he says. "It's not been easy but it had to be done and these decisions had to be faced."
His decision to brief staff face-to-face in Shannon about the job cuts was certainly a brave one. He faced a barrage of criticism and heckling from emotional workers who were distraught at the prospect of losing their jobs.
Mannion likes to have breakfast and lunch in the staff canteen every day as a way of connecting with his workforce. Given the current bad blood at Aer Lingus, he might be well advised to dine in his office for the foreseeable future.
Mannion says he will see this through. "The strike has to be faced down," he says firmly. "This is a very major issue for the company and I've no doubt that we will be a better company going forward and better able to serve the public going forward."