Tuesday 31 March 2015
“The need for the Minister for Transport, Tourism and Sport to defend the independence of Aer Lingus from the proposed takeover by British Airways / IAG in view of the failures of the takeover airline to serve adequately the regions of the United Kingdom and the need for Ireland as an outer offshore island to develop independent competitive air services”
Senator Sean D. Barrett
I would like to thank Senator Barrett for raising this matter – I am very much aware of his interest and expertise in this area.
Clearly connectivity and the future of Aer Lingus are very important issues, in which there is a great deal of public interest. IAG’s proposed offer for Aer Lingus was first announced over three months ago.
Since then I have outlined the Government’s policy in relation to this matter on a number of occasions and engaged in debates in both Houses of the Oireachtas.
I last addressed the Seanad on the matter on 28 February and am very glad to return today to provide an update.
I must once again preface my remarks by reminding everyone that Aer Lingus remains in an “offer period” under the Irish Takeover Panel Rules.
I am constrained in what I can say publically on the matter, as these rules apply to all parties, including significant shareholders such as the State.
However, constrained as I am in what can be said, I will address the more general policy issues raised by Senator Barrett.
The Senator has spent a good part of his career as an economist championing the merits of market forces over government intervention, in particular in the aviation sector.
Senator Barrett’s work has in particular highlighted the benefits of applying the market’s invisible hand to previously State dominated sectors such as aviation. Over the years his research has provided ample evidence of the many failures of State intervention in the market, both in Ireland and abroad, including intervention via State ownership.
On the other hand his work also highlighted the benefits that market liberalisation has brought as a whole.
The aviation sector, and in particular the aviation sector in Ireland, is certainly a good case study for the Senator to have chosen. It is one of the best examples of the benefits that accrue when a monopolistic State dominated industry is gradually opened up to competition.
An important part of that process has been the reduction of State ownership in the sector. Most European States have now divested themselves of airline shareholdings and in some cases the State-owned airline is no longer in business.
However, there are still some significant State shareholdings, such as our own Aer Lingus shareholding.
The first significant deregulation of aviation took place in the US. Since 1992 the European aviation market has been fully open for all EU airlines. This has been a win-win for all concerned. Consumers, airlines and the wider economy have all reaped benefits in terms of increased routes and connectivity and a significant lowering of prices for consumers.
The Senator points to regional connectivity in the UK. However, the whole point of the open market is that any such gaps will be quickly filled by competitors.
Indeed, Aer Lingus’s own strategy of bringing traffic from the UK regions through Ireland on transatlantic routes is a good example of this.
In terms of the structure of the airline industry, the opening up of the market has led to two major trends. New operators, such as Ryanair, have expanded to become truly European airlines serving virtually all markets across Europe.
Secondly, among the legacy carriers a process of cross border consolidation has led to the emergence of three main multi-airline groups in Europe; IAG, Lufthansa and Air France/KLM.
When it was a State-owned airline Aer Lingus was supported on a number of occasions by the taxpayer. That option is no longer available, which is partly why the State chose to sell its majority shareholding in 2006 so that it could have access to capital to fund its growth.
Since then the company has had its ups and downs, but in recent years has returned to profitability.
The Government’s underlying position in relation to its shareholding in Aer Lingus remains that it will not be sold unless the terms of the sale are satisfactory to the Government and an acceptable price is secured.
Legitimate concerns have been voiced regarding IAG's proposed offer and the Government has outlined the details and clarifications it is seeking from IAG in that regard.
The inter-Departmental Steering Group is continuing discussions with IAG. I have made it clear that I wish to see the matter brought to a conclusion within a number of weeks. The on-going engagement with IAG is taking place in that context and the Steering Group is fully focussed on that objective.
The outcome of this work will be examined very carefully by Government against a set of public interest criteria before making any decision. Connectivity, including to the regions, and employment are high amongst those criteria as I have outlined on many occasions.
Thank you very much and I look forward to continuing to engage with the Senator on this matter.