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AER LINGUS may be forced to shut down if its staff keep
striking, directors at the airline will be told tomorrow. At an
emergency meeting, the board is expected to discuss the
closing of several routes as well as retrenchments.
Informed sources say the 65-year-old company, which narrowly
escaped bankruptcy seven years ago, is in dire financial
difficulty. At a recent board meeting, directors were informed
that the airline, which made £60m profit last year, could slip
into losses. That stark message is to be conveyed to the
government this week, in what will be a strongly-worded profit
warning.
"Complete closure is the nuclear option, but clearly the
company is at risk," said a government source. "It cannot
operate forever in these circumstances."
Wage settlements with striking employees are expected to
cost an extra £30m a year, while foot and mouth disease and a
downturn in the American economy could dent revenues by a
similar amount. Airline traffic to Britain and the Continent has
fallen by 20% in recent weeks, and the number of passengers
on transatlantic flights has dropped by 5%. Bookings for the
summer season, usually the busiest time for airlines, point to a
further deterioration.
"If things do not pick up, the consequences could be very
severe. Another outbreak of foot and mouth, for instance, would
be devastating," said a senior company source.
He added that the airline was likely to close a number of leisure
routes in the near term, and cut flights on others. Job losses
were also in prospect.
The airline's problems are, to some extent, of its own making.
Management at the company conceded generous pay
increases to cabin crew early on, opening the door to a flood of
copycat claims. So far, they have done deals with stewards
and hostesses, administration and front-of-house staff, as well
as cleaning and catering workers. The airline's pilots have
submitted a me-too request for an increase that would put them
on a par with counterparts at British Airways.
Critics say that Michael Foley, a high-flyer parachuted in as
chief executive last year, has been too soft on unions and was
naive to suppose he could ring-fence a deal with cabin crew. If
strikes continue to cripple the company, his position could
become untenable.
Aer Lingus has, to some extent, fallen prey to a battle for
market share between Siptu and Impact, the two unions
operating at the airport. With the latter poaching members from
the former, both have become increasingly militant, with each
attempting to outshine the other in terms of pay awards.
Every striking day costs the airline up to £3m, and that is
without counting the long-term cost of lost loyalty.
Internal strife at the airline has been compounded by a
deterioration in the external economic climate. A slowdown in
America, notably in the high-tech sector, which has close links
to Ireland, has led to a drop in business bookings, while foot
and mouth has caused a drop in leisure travel.
Aer Lingus's flotation, a vital part of future growth plans, is now
off the agenda. The company can no longer go cap in hand to
the government, traditionally its favoured method of raising
money, and private investors are unlikely to respond favourably
to requests for cash.
"We were depending on flotation money to cover the cost of
expansion," said one director. "Now we have the overheads,
without any chance of raising the money." Aer Lingus's
expansion plans were to be financed by up to £1 billion in
borrowings and cash, and will now almost certainly have to be
put on hold.
Such a dramatic decline in fortunes is not unusual for airlines.
The industry is notoriously volatile and a number of household
names have gone to the wall in a matter of months during
economically turbulent times in the past.
Aer Lingus itself has experienced more than a few crises. The
state airline came close to bankruptcy in 1994, and was only
saved by a £175m hand-out from the government.
It implemented a rescue programme, named after its chairman,
Bernie Cahill, that shaved £50m off annual costs and cut the
workforce by 1,200. </font>