The Government has cleared the way for the sale of Aer Lingus, with its advisers and the airline itself told to start work on the process immediately. And work they will. As the statement issued after yesterday's Cabinet meeting makes clear, the sale will proceed only if a number of caveats are met. The most significant of these is that the Government will retain a golden share of at least 25 per cent of the company. This will allow it to block significant transactions, such as a takeover, which it deems contrary to wider strategic concerns.
Other provisos include addressing the potential deficit in the company's pension scheme post-flotation. This will require a significant injection of the funds raised from the sale as well as increased contributions from the company and workers. The concerns of Siptu, the largest of the airline's trade unions, will have to be dealt with. The union vehemently opposes the sale and has threatened strike action if issues such as job security and the dilution of the workers' stake in the airline are not resolved. Also on the advisers' to-do list is finding some way of assuaging fears that once the company is free of State control it might sell important assets, such as its landing slots at Heathrow airport in London.
Whether the need for them is accepted or not, there will be a significant financial cost in meeting these preconditions. The various checks and balances needed to deal with them will all serve to make the airline less attractive to investors. Why, for example, would an investor want to buy shares in an airline 25 per cent owned by the Government, given its propitiatory and non-commercial attitude to the airline in the past? Equally, why invest in an airline, two thirds of whose workers don't want it sold? And why put money into a business, only to see it disappear into a hole in the company pension scheme?
The trade-off involved in answering these questions will ultimately be reflected in the price of the company's shares when it comes to the market. Given the extent of the baggage that will be attached to the sale, it seems prudent to expect that the shares will, in the parlance of the stock market, be "priced to go". This means they will be sold at an attractive discount to the price the market could be fairly expected to attach to them, in order to ensure that investors buy them and continue to support them in the aftermath of the flotation.
It is axiomatic that the size of the discount required to make the sale a success will dictate the amount of money that will be raised from the flotation for investment in the business. However, it is unlikely that such a deep discount will be required as to undermine the economic logic of proceeding. In addition, other intangible but positive factors will come into play, such as the granting, finally, to the airline of commercial freedom. The sale of Aer Lingus, in the manner outlined yesterday, is by no means a done deal or a panacea, but it remains the correct course of action.