FORMER WATERFORD Glass chairman Paddy McGrath once described the glass business as "the greatest way of burning money you ever came across". Sir Anthony O'Reilly, his successor at what later became Waterford Wedgwood, has every reason to echo those sentiments. He, together with his brother-in-law, Peter Goulandris, own more than half the company.
In recent years they have invested an estimated €300 million in what has become a major loss-making venture. The company, it seems, has tried everything. Waterford has raised fresh capital, shed jobs and outsourced production to low-cost centres in eastern Europe in a bid to restructure its operations, restore competitiveness and regain profitability. But to date, the return on all that reorganisation effort and investment has proved hugely disappointing.
In the late 1980s crystal manufacturing at Waterford employed more than 3,000. Now some 1,000 work there, and of these 500 are facing redundancy this year. The company has warned that unless it can finance the restructuring cost of its redundancy programme, the future of its crystal plant at Waterford may be in doubt.
Waterford Wedgwood, quite simply, has run out of credit at a difficult time when banks are experiencing a credit crunch, where credit is tight and where borrowing is difficult to secure. The company, with debts in excess of €470 million, or almost 10 times its stock market value, also has a large deficit in its pension fund. As a result, banks are unwilling to extend further loans without certainty of repayment, such as a State guarantee would provide. On Tuesday the Government rejected Waterford Wedgwood's request to underwrite loans amounting to €39 million which it needs to fund its redundancy programme. The Government offered to support the company in any other way that it could. The Cabinet has taken a difficult decision - and it is the correct one.
The Government, rightly, does not wish to become the lender of last resort to companies in financial distress because of market difficulties. That interventionist industrial policy ended in 1989 when Foir Teoranta, the State rescue agency, was scrapped. To reverse course now would set a bad precedent with unpredictable consequences. Other cash-strapped companies would invoke such a precedent. And the Government would come under public pressure to intervene and to assist companies in difficulty, thereby increasing the taxpayers' exposure to potential financial loss.
Waterford Wedgwood's current market difficulties have many causes, from a strong euro and a weak dollar, to sluggish American demand, to lifestyle changes and to a more fashion-conscious luxury goods market. Its range of crystal and tableware remain premium products. Increased competition and lower costs in the industry, however, have made it harder for the company to command the premium prices that its products once enjoyed. Nevertheless, only the company can make the necessary changes to secure its survival and to ensure its return to profitability. State involvement is a distraction.