Future of Aer Lingus in doubt

The future of struggling airline Aer Lingus is in doubt as the Irish Government attempts to find a way to shore up the beleaguered company.

The airline, which is 95 per cent owned by the Irish government, has warned employees that the future of the company is in doubt as it announced plans to axe 2,500 jobs as part of a radical cutback aimed at reducing operating costs. However, it is understood that the airline is unlikely to have sufficient cash reserves to pay the costs of the redundancies that have so far been announced.

Ireland’s Minister for Public Enterprise, Mary O’Rourke, said she would be seeking formal approval to arrange a Government guaranteed loan for Aer Lingus.

The loan would be subject to approval by the European Commission, which has so far resisted intense pressure to allow cash aid for European airlines despite a very poor prognosis for the medium-term prospects of the European airline industry.

However, this week Belgian airline Sabena managed to get European Commission approval for a £78 million bridging loan. As this is not considered to be a grant the loan has received Brussels’ approval, but it is feared that even this massive loan will only sustain Sabena for a few weeks.

As analysts continue to downgrade the trading positions of many European airlines, many of which rely heavily on fares from lucrative transatlantic and overseas flights, short-term bail-out plans for airlines may not be the answer.

In addition to reduced revenue from long haul flights, the problems facing Aer Lingus are compounded by continued successful competition on domestic routes from short haul carriers such as Ryan Air. Cut-price airlines such as Ryan Air have carved a huge chunk out of the domestic schedules formerly run by larger airlines such as Aer Lingus.

As national governments try to prop up their flag carriers, many analysts predict that in the longer term only three carriers probably Lufthansa, Air France, and British Airways will survive the current pressure. (SP)