Aer Lingus officially begins life as a privately owned stock market company on Monday when its shares are listed on the stock exchanges in Dublin and London. The shares have been trading unofficially since last Wednesday morning and so far things seem to be going well. The share price closed yesterday evening at €2.48, a premium of 28 cent to the price at which they were issued.
There are really two questions at this stage. The first is whether the selling shareholder - the Government and ultimately the taxpayer - has got good value. The second is how the company and by extension its shareprice will fare in the future. The answer to the first question is - after a fashion - a function of the answer to the second. If Aer Lingus shares continue on their current trajectory, it will inevitably lead to accusations that the airline was sold too cheaply. But the Government and its advisers will happily cross this bridge should they come to it. The corollary, a fall below the issue price as happened with Eircom, would leave them with a far bigger political headache.
The issue price of €2.20 that was settled upon in the early hours of Wednesday was at the lower end of expectations which had ranged from €2.10 to €2.70. And, as the 11 per cent increase since then indicates, it was at a significant discount to the value that the market puts on Aer Lingus. Flotations are routinely priced at a discount in order to ensure success, but the increase in the price seen in the past few days suggests the Government and its advisers erred on the side of caution.
This was always going to be the case, given the scale of the challenge involved in successfully bringing Aer Lingus to the market. Despite the underlying strength of the business, many factors militated against a successful flotation. Leaving aside the general uncertainty in the airline industry, Aer Lingus had to overcome investor concerns about a number of company specific issues, including a blocking stake being retained by the Government and a significant staff holding. In addition, no other European airline faces such direct competition from Ryanair.
For these reasons and others Aer Lingus was priced to go and undoubtedly a higher return could have been achieved in different times and subject to different constraints. The immediate loser is the Exchequer, which saw its share of the proceeds pared back by more than €100 million from the more optimistic forecasts. This will be offset somewhat by the increase in the value of its residual stake in recent days.
But any analysis of the State's return from the sale of Aer Lingus has to be seen in the broader context of the gains that will accrue from having an independent, well-financed airline that will be able to operate with commercial freedom in competition with Ryanair. That is the best guarantee of both better services and lower prices in the long term.