July 2006 Archives

Aer Lingus Privatisation

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While each of these reservations about the proposed privatisation of Aer Lingus may not be "deal breakers", their combination suggests that privatisation is a step too far:

    1. The amount to be raised via the IPO is "small beer" in the context of the airline's total needs and surplus funds at the disposal of the Exchequer
    2. The cost of the IPO and related ongoing costs will erode the IPO proceeds and future profits.
    3. Key benefits of the investment programme might be achievable without privatisation.
    4. The market-related strengths that Aer Lingus might bring to new, capital-intensive, long-haul routes are very limited.
    5. The investment programme is excessive given the airline's financial base and any disruption to profits could undermine the business.
    6. To maintain its stake post-privatisation, the Government would need to re-invest which defeats a key reason for privatising.
    7. The initial market capitalisation may not be sustainable given its likely premium to shareholders' funds, cyclic nature of the airline business and (apparent) intention not to pay dividends.
    8. If dividends should be paid, the cumulative outflow over time would reduce profit retentions and undermine the airline's  capacity to borrow and expand.
    9. If the airline industry should go "pear-shaped" for any reason, Aer Lingus might need State assistance,  irrespective as to whether it is in public or private ownership or what the EU says, for national strategic reasons.
    10. If the State's stake is diluted, it will be powerless to ensure that Aer Lingus is not subject to assets stripping or a hostile takeover.
    11. The proposed deal with the trade unions is too expensive and would restrict future profitability and flexibility.
    12. Can the proponents of privatisation guarantee that the eircom experience (stock market ping-pong, under-investment and general belligerence) will not recur with Aer Lingus.

Letter published in the Sunday Business POst on 9th July 2006. 

LUAS - Really Breaking Even?

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Richard Curran's report on Luas (25th June 2006) indicated that the Railway Procurement Agency (RPA) had not been directed by government to recover its capital expenditure and non-operating costs. It quotes the RPA as saying that "no toll road in the world for example has recovered its capital costs". Has the RPA never heard of the East and West Links and is the National Roads Authority not endeavouring to do exactly that with its tolls? Imagine, ESB constructing a power station and only charging for the cost of fuel and local labour, or Aer Lingus ignoring the cost of aircraft when setting ticket prices. I suppose that this approach is only to be expected given Minister Seamus Brennan's suggested on Prime Time that Luas was "planned on the back of an envelope".

Letter published by the Sunday Business Post on 2nd July 2006.

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