Aer Lingus clips its wings

By Russell Padmore
Business reporter, BBC World Service

Every jet which sits idle on the tarmac costs Aer Lingus money

The Irish airline Aer Lingus is facing possibly its worst funding crisis since it was first launched in 1936.

Last week, the former state-owned carrier revealed that its revenues fell 10% in the last quarter, compared with the same period in 2008.

The airline has been involved in often fraught negotiations with trade unions and this week, it hopes to conclude those talks with an agreement to implement cuts of almost $100m.

Aer Lingus has been steadily burning through its reserves of cash, adding urgency to the company's efforts to get staff to sign up to an agreement on cuts. It is a worrying development for experts who follow the fortunes of the industry.

"There isn't anywhere at the moment that is a ray of light for them," says independent aviation analyst John Strickland. "I think it's in a very difficult position."

Laurie Price, the director of aviation strategy at the consultants Mott MacDonald, outlined the carrier's stark position, insisting it must start to live within its means. "The worry is whether the cuts will be enough to help them grow going forward," he says.

Transatlantic troubles

As Aer Lingus battles to deal with recession, performance numbers are ringing alarm bells.

At the end of September, it had cash reserves of about $600m, a drop of 39% from last December.

AER LINGUS BY NUMBERS In September, Aer Lingus had about $600m cash Average fares down 17% in the third quarter Analysts forecast annual losses about $600m

It does not help the former state-owned flag carrier that Ireland is suffering a deep recession, with any recovery predicted to be a long time in the future.

Aer Lingus's long-haul transatlantic market, flying from London and Dublin to US cities such as Boston, New York, Chicago and San Francisco, has struggled, especially as Americans find the weak dollar makes prices in Europe so expensive.

Last month, the chief executive, Christoph Mueller, outlined plans for cuts that would include 676 jobs from the workforce of nearly 4,000.

It also possible that the airline could sell some of its aircraft. According to some reports, eight Airbus jets could be sold.

Merger machinations

However, it is still possible that the future of Aer Lingus could be determined by its major competitor and biggest shareholder, Ryanair.

The low-cost, no-frills, airline owns nearly 30% of Aer Lingus. It is thought the carrier's outspoken chief executive, Michael O'Leary, is still interested in doing some sort of deal to get control of its rival.

Ryanair Chief executive, Michael O'Leary, stalks Aer Lingus.

However, Mr O'Leary and his fellow decision makers at Ryanair are forced to sit on the sidelines right now as the competition regulators have ruled against a merger, for now.

Last month, Mr O'Leary denied a report by the Financial Times that claimed Ryanair could take control of Aer Lingus through a rights issue. He insisted there was "no substance" to it.

The company is also keen to stress that Mr O'Leary recently told shareholders that Ryanair was "highly unlikely" to make a third offer.

This week, Aer Lingus and Ryanair will enjoy a one-off profits boost, as they fly thousands of Irish soccer fans to Paris to see their country play France on Wednesday evening.

The thousands of supporters in the travelling "Green Army" are hoping the Irish national team can reverse a one-goal deficit and beat the French to qualify for the World Cup next year in South Africa.

It brings a welcome addition to revenues, but Aer Lingus will be hoping the result goes well for the Republic of Ireland's boys in green, putting the nation and its trade unions in a positive frame of mind this week.

Aer Lingus is flying through a storm right now, but if it achieves a deal with staff to accept deep cuts, there could yet be blue skies ahead for the Irish airline.