A critical phase in the transformation of Aer Lingus was completed yesterday when the board endorsed the proposal from the company's senior executives for a strategic alliance with the Oneworld international airline grouping which includes American Airlines and British Airways. There are good grounds for believing that Aer Lingus has, at last, found a compatible partner: Oneworld is the largest of the four sizeable alliances which now dominate international aviation. A strategic alliance with Oneworld will give Aer Lingus much greater potential to generate new revenues; it will gain access to an extensive global network as the company, and its passengers, feed into the routes and hub points of its new partners. Critically, Oneworld gives Aer Lingus a strong partner on the lucrative transatlantic routes; it will now be able to offer passengers destinations beyond its own routes to New York, Chicago, Boston and Los Angeles. But the company is well placed to be as strong in the east as it will be in the west; the new partnership gives Aer Lingus the opportunity to recover revenues lost when passengers begin their journey with Aer Lingus and then switch to another airline, particularly at Heathrow. At present some 30 per cent of Aer Lingus passengers travel in this way, but the new arrangement will allow the airline to channel passengers towards a partner carrier.
For Aer Lingus, yesterday's decision completes a remarkable turnaround. Only seven years ago, the company appeared to be on the brink of insolvency but it has clawed its way back, thanks in no small measure to the Cahill rescue plan, a once-off injection of £175 million in State equity and a much improved international aviation market. Today, the company is generating profits of some £40 million per year, the potentially disastrous TEAM difficulty has been resolved and the increase in passenger numbers is projected at a spectacular 12 per cent this year.
But the strategic partnership is only one essential step in the development of the company; flotation on the stock market may be the logical next step. Although the final decision on this (and indeed on the strategic alliance) rests with Government, the board clearly signalled its preference after yesterday's meeting: "In order to meet existing growth plans, including the major fleet development programme . . . and to maximise the potential benefits of membership of the proposed global alliance, Aer Lingus will need access to equity capital". With the State indicating that it does not wish to provide further new equity - and with the strategic partners ready to take a 10 per cent stake - the board says that a public flotation "would broaden the shareholder base of the group and provide a real market for the shares currently held by employees. . ." The argument presented by the board is persuasive: a shareholding would give Aer Lingus the equity it requires to grow and develop and it could also head off any industrial relations difficulties. In all the circumstances, it may be that the Tanaiste is correct when she observes, as she did yesterday, that there is no longer any meaningful long-term role for the State in Aer Lingus.