From The Sunday Times
May 21, 2006
Comment: Matt Cooper: Walsh was no robber, but Ahern's dithering may lose airline millions
Last week’s attack by Bertie Ahern on former Aer Lingus boss Willie Walsh was so bad-tempered you’d think he had advance knowledge of Friday’s disastrous opinion poll findings. He didn’t, of course, so the precise reason for a verbal assault that would have resulted in a libel suit had the taoiseach made it outside the Dail remains a mystery.
Ahern accused Walsh of trying to “steal” the assets of Aer Lingus and of planning to “shaft” the workers, just because the airline’s chief executive indicated two years ago that he was prepared to front a buyout of the business.
Ahern has had plenty of opportunities since Wednesday to withdraw these extraordinary allegations, but the best he could manage was a mealy-mouthed excuse from a spokesman that he didn’t mean to say “steal”. What he did mean to say remains unexplained. Mary Harney offered the view that he probably meant to say “strip” but I’m not sure if her attempt to decode her boss’s use of the English language has been entirely successful.
The taoiseach’s claim is absurd but has proved a nifty exercise in distracting attention from the real scandal: Ahern’s dithering on the future of Aer Lingus and the likelihood that it will end up costing the state hundreds of millions of euros.
In his indecision on Aer Lingus, the taoiseach has turned prevarication into an art form. There were only two choices to sort out the airline’s future financing requirements — state investment or a sale of shares to the public. The decision has been dragged out so long that the company’s viability may be at risk.
The attack on Walsh was all the more remarkable given that it was the former chief executive that saved Aer Lingus as it plunged into financial turmoil in the wake of the global aviation recession prompted by 9/11. While the workers deserve credit for agreeing to a massive programme of redundancies that halved the workforce to 3,500, it was Walsh who fully appreciated the scale of the problem and had the guts to demand the level of sacrifice required.
He realised saving Aer Lingus was not enough. The airline had to raise money to expand if it was to protect itself against further cycles of economic downturn. He asked, he begged, he cajoled but all to no avail. Conscious that trade unions were opposed to privatisation, the taoiseach wouldn’t say yes. But neither would he say no.
Walsh let his frustration get the better of him and made a critical error. He tried to call Ahern’s bluff by publicly offering to buy the company along with two other senior executives, Seamus Kearney and Brian Dunne. That’s buy, not steal.
There was a predictable outcry at the prospect of company insiders trying to purchase an iconic state asset. The taoiseach and his socialist buddies in the unions denounced the move as inspired by greed, but the overwhelming emotion was envy.
I doubt that Walsh really believed a management-led buyout of Aer Lingus would be allowed, but his naivety on that front, together with the continued refusal by the government to face up to a decision on financing, meant his days as Aer Lingus boss were numbered.
Walsh quit in late 2004 and is now sitting pretty as chief executive of British Airways. His success is a slap in the face for Ahern. It is a constant reminder that the taoiseach’s inaction allowed Aer Lingus to lose one of the most talented executives in the aviation industry. Could it be that this realisation was part of the reason for last week’s outburst?
The suspicion that the Ahern/Walsh showdown was personal deepened when the government sanctioned the sale of Aer Lingus in March. “I’m glad those individuals went on to prove their worth in the financial markets, but I’m glad they didn’t do it at the expense of Aer Lingus,” said Ahern last week.
So we are left with a puzzle. Selling Aer Lingus to a group of individuals who did the state some service by protecting a valuable asset when the world was in turmoil is not acceptable. Selling Aer Lingus to a group of faceless institutional investors is acceptable — even though there is no guarantee that they will pay more than Walsh, or be any less aggressive when it comes to slashing jobs and costs.
The beneficiary of Ahern’s obvious disdain for Walsh is Dermot Mannion, the new Aer Lingus chief executive. He returned from a more glamorous job in the Middle East on condition that he could raise money for expansion by selling shares to the public. So two years after Walsh made his proposal for private equity, this is now deemed an acceptable idea.
But everything else has changed and that is why Ahern’s dithering has been so dangerous. The government intends to sell 60% of the airline for about €600m and will try to conclude the deal in September. But the conditions for such a sale have altered dramatically since Walsh’s plan was first hatched in 2004.
Stock market values around the world, however, are falling as inflation and interest rates rise. Soaring fuel costs following the explosion in oil prices means that investors are largely shunning the aviation sector. One German airline has already been forced to reduce the price of its shares in order to ensure flotation on the stock market.
In this harsher environment, any money that Aer Lingus succeeds in raising from investors will be at greater risk than it would have been two years ago. New routes planned by the airline, to be serviced by aircraft purchased with the sale proceeds, may be difficult to establish. Aer Lingus has already been forced to slap a €70 “fuel surcharge” on the price of long-haul tickets. While no such measures are planned for its British or continental European routes, the principle has now been established and could come into play if profits are threatened.
All this means there are serious commercial reasons to question the financial rationale for a sale of Aer Lingus. Any disposal now is likely to be on the cheap, compared with the price that could have been achieved six months ago, never mind two years ago. The trade unions have not relinquished their bid to “save” Aer Lingus from the clutches of private enterprise. But having lost the ideological objection, Ahern’s indecision means they can now cite economic ones.
Regardless of opinion on this debate, Aer Lingus still needs cash. It has a €200m hole in its pension fund. It requires new aircraft, if not necessarily the €2 billion worth of kit planned by management. If it can’t raise money from new investors, then the state is going to have to stump up about €500m. Would the government like to clarify which essential service or project will have its budget slashed to meet this bill?
If the company’s advisers decide that changed circumstances no longer make the airline an attractive proposition for the private sector, then the state will be forced to pick up the tab on the basis that nobody else wants to. Try selling that to a sceptical public when there are so many other demands on the government’s funds.
And what happens if those same advisors recommend that the sale should be at a much lower price that reflects the difficult external environment?
These dilemmas would not exist if Ahern had acted decisively and swiftly. But while Nero fiddled away, something even more annoying was happening out in the real world. Ahern has made no secret of his dislike for Walsh but you can be sure that it is nothing compared with his (unreported) views on Michael O’Leary. Unlike the Ryanair boss, Walsh has never taken out full-page newspaper ads lampooning the taoiseach and branding him a “ditherer”.
O’Leary, the bête noir of the trade union movement, has been uncharacteristically quiet on the future of Aer Lingus, maybe because the stalemate at the state company has played right into his hands. As Aer Lingus waits in the departure lounge, Ryanair has become the primary provider of air travel into and out of the country, mostly at cheaper prices. Having turned its back on developing new flights out of Ireland during the Walsh era, O’Leary has taken advantage of the Ahern-sponsored difficulties affecting his domestic competitor, to soup up his Irish operations.
The taoiseach, by playing footsie with O’Leary’s enemies in the trade unions, has delivered the lion’s share of the Irish aviation market to Ryanair. It’s not what he intended, of course, but the irony won’t be lost on Walsh. He, surely, is enjoying the last laugh.