The limited bail-out approved by the European Commission for Aer Lingus and the other European carriers is welcome, but it is already clear that substantially more state cash will be needed if the airline is to survive. Equally, Aer Lingus must follow through with the far-reaching transformation programme which it is now finalising. If this fails, then state aid will only postpone its collapse.
It is apparent that the Government is of a mind to stump up once again to support the airline. Both the Taoiseach and the Minister for Public Enterprise, have now committed themselves to saving Aer Lingus, which yesterday briefed its workers on the extent of the crisis facing it. The letter to the 6,300 staff from acting Group Chief Executive, Mr Larry Stanley, makes grim reading. Some 2,500 people are to lose their jobs in an effort to trim costs by £130 million as annual losses head for £200 million.
Yesterday's package from the commission offers some respite. The Government can continue to underwrite the company's war-risk insurance and pay for extra security. Compensation for the impact of the events of September 11th, including the four-day shut down of US airspace, will be allowed. This could be substantial, given the importance of the transatlantic routes to Aer Lingus.
Europe has ruled out more general state aid, but, at the same time, has flagged the provision in the state aid rules for temporary loans. This appears to be the direction from which the latest - and hopefully last - state rescue of Aer Lingus will come. The Government and the airline have already started to lay the foundations for a £125 million plus soft loan to cover the cost of making 2,500 people redundant. However, Aer Lingus may yet have to declare itself bankrupt to get the money which equates to some £50,000 per person.
If the Government goes down this road it could find itself in conflict with the commission. Ryanair will no doubt object, having already opposed a €125 million bridging loan to Sabena from the Belgian government. The low-cost carrier is unlikely to be the only objector.
The Government's defence is expected to centre around the strategic significance of Aer Lingus given our island status and the importance of transatlantic trade and tourism. Any disputes that arises could take some years to make their way through the European legal system. In the meantime, the government will get on with saving Aer Lingus.
The issue looks set to ultimately become embroiled in a review of European aviation policy. In what smacks of a fairly blatant trade-off for yesterday's limited aid package, the commission will reportedly ask next week for permission to negotiate a new aviation services treaty with the US. Ending the current practice of member states negotiating bilateral treaties with the US, spells trouble for the Shannon stopover. The public support for the efforts of the Irish Government and its counterparts to save their flag carriers indicates that the commission may soon find itself out of step with its citizens on this issue. The management and staff of Aer Lingus have an enormous task, as they strive to secure its future.