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??? Li???? Back in Safe Hands

Posted on: July 17th, 2007 1 Comment

Welcome back to the People’s Republic of Aer Lingus. Just for a moment, as recently as last October, innocent investors believed that the national airline had defected to the West. We should never have doubted her.

Vladimir Putin could take lessons from the commissars out at Dublin Airport: how to privatise a company and still retain it in state ownership. Last week, a privatised airline was cemented in the grip of a bolshie, bearded workforce. A misnamed Competition Commissioner acted as its protector from capitalism.

Aer Lingus was never privatised. A portion of it was sold off. Key shareholdings landed in commissar-friendly hands. The sale was an aberration. Michael O’Leary made a bid for the airline, momentarily threatening to lift it into the modern age. Last week the commissioner’s ruling put paid to that little fantasy.

The boys with the beards are back in the saddle. Aer Lingus will return to the familiar old road of industrial trouble. All is settling down again at Dublin Airport. Normal hostilities will be resumed.
Whatever the merits of the decision of Commissioner Neelie Kroes to kick Ryanair’s Michael O’Leary off the Aer Lingus pitch, the outcome is bad news for Aer Lingus shareholders. Michael’s emasculation means the sword of Damocles hanging over the airline is gone. It can return to its old ways. Ever since he bid for the airline, its trades unions and management have circled the wagons to resist the common foe. Michael Halpenny and Jack O’Connor of Siptu have been prepared to swallow nasty medicine, just to keep O’Leary at bay.

Aer Lingus chief executive Dermot Mannion has spent his daylight hours repelling the Ryanair attack. Until Wednesday, they were united, standing together against the wolf at the door. O’Leary’s looming presence as a 25 per cent shareholder was investors’ best guarantee of cost cutting. The guarantee is gone. Now watch, as the two sides tear lumps out of each other again. Aer Lingus shareholders should shudder.

Not just because Aer Lingus is set to return to its old workers’ republic status; but because the shareholder structure set up by the sale itself is revealed as a fiasco. Aer Lingus is one of the least liquid companies in the Irish market. Seventy two per cent of the shares are held by big players. The State still holds 25 per cent, the workforce (ESOT) 15 per cent, Ryanair 25 per cent, Denis O’Brien two to three per cent and the pilots four per cent.

And everyone’s a loser! Except the workforce. Quite a coup for the brethren. They have made a fortune out of the sale while all the so-called entrepreneurs have emerged with bloody noses.
The taxpayer is a big loser, as the shares were sold too cheaply at €2.20 in the privati-sation. Even O’Leary may be under water on his average buying price. Denis O’Brien is in the manure business and the pilots’ pension fund paid three euros. On Friday, the shares closed at €2.66.
The ESOT – meaning the free shares given to the workforce as a reward for its militancy – is in clover. The staff alone did not have to put their hands in their pockets.

Pretty good at the capitalist game, these bearded guys. They have seen O’Leary off and have run rings around the genius O’Brien, the investment managers, the hedge funds and, of course, Mannion himself.

They have been watching capitalism at play from the sidelines, secure that they and their poodles in the government are back in command. They have reaped a financial reward while they have played a political blinder.

The general election was a clear victory for Bertie’s policy of appeasing the brethren. Government seats in North Dublin were expected to tumble to the Left like skittles, as supposedly discontented airport workers punished Fianna Fail. But Bertie had delivered. Capitulation paid. The key constituency of North Dublin miraculously returned two FF TDs, despite the retirement of both sitting deputies, GV Wright and Jim Glennon. The Taoiseach himself comfortably pulled in a running mate in Dublin Central. In neighbouring Louth , FF easily held its two seats despite predictions of doom. Meath went the Government’s way. Nearly all the constituencies adjoining Dublin Airport (where much of its workforce live) rewarded Bertie for his appeasement of the brethren. The exception was the defeat of Martin Brady in Dublin North East.

Far from being unhappy, the workforce at Dublin Airport are the spoiled brats of the public sector, bolshie in behaviour yet benefiting from the privatisation. They even sent Socialist Party candidate Clare Daly packing in Dublin North. Daly had tried to foment discontent among airport staff and was widely tipped for a seat. She was not at the races. The staff wanted to maintain the status quo. The unique People’s Republic of Aer Lingus was paying them dividends in spades.

Yet investors are still being fed the pretence that Aer Lingus is a normal quoted company. Last week Mannion strove to convince the media that he operated under the same rules as O’Leary when he insisted: “Michael O’Leary is accountable to shareholders, just like I am.” He is not. On the very same day O’Leary told his own shareholders to stuff it! Answering questions about whether Ryanair shareholders would approve of him holding onto his 25 per cent shareholding in Aer Lingus he answered in two unprintable words. And then, in what must be a first, he simply challenged them to sell their shares.

Mannion would never be able to cheek his shareholders like that because he is their prisoner. Michael is their master. Michael knows that they are well spread globally; they understand his antics and appreciate that his style has contributed to his phenomenal success.

And the market liquidity in Ryanair shares is massive. On Wednesday, the day Neelie Kroes delivered disappointing news for shareholders in both companies, the turnover in Ryanair stock was approximately €7.8m. Turnover in Aer Lingus was just €600,000. It is impossible to create a liquid market in Aer Lingus when 72 per cent is in the hands of holders with noncommercial agendas.

And the shares themselves are a haven for wild speculators. They attracted stags at the IPO (including myself); they provide a playground for derivatives dealers; they have been a target for gamblers taking short positions; they have been traded galore by hedge funds. The market in Aer Lingus stock has been a casino. Little real investment activity is seen. Pension funds, like the misguided pilots, have been burned alive.

The next battlefield will be the cost-cutting agenda. Now that the threat of the devil incarnate, O’Leary, is gone, the brethren will turn their fire back on the airline.

Neelie Kroes may be right that a takeover of Aer Lingus by Ryanair could create a monopoly, but the bearded Siptu boys must be doing high fives. Neelie, the EU commissioner, has handed the airline back to the brethren.

What’s next? A few years down the line: another visit to the Commission when Aer Lingus and the Government seek permission for State aid due to the failure of the cost cutting programme.