The bank has told the government that, although the state airline urgently needs access to capital, any privatisation must be by way of flotation.
A series of discussion papers presented to the government last week, while not making any definite recommendations, have been interpreted as a call for an early privatisation.
The paper raises two specific “crucial strategic areas” that need to be addressed if the government is to proceed with its plans to sell the state airline. These are the Aer Lingus slots at Heathrow, which BA is thought to be coveting, and the future of transatlantic flights.
The issues are up for discussion with the various government departments but no definitive solutions have been found.
Sources said the slots, which are among the airline’s most valuable assets, can probably only be maintained in government hands if it holds onto a substantial part of the company. There are also serious question marks over Aer Lingus’s vital transatlantic routes.
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During the discussions it was pointed out that had Aer Lingus been a private firm at the time of the 9/11 attacks it would probably have pulled most of its transatlantic flights. This would have made commercial sense but would have been very damaging for Ireland.
Goldman Sachs was hired by the Department of Transport to advise on the implications of the airline remaining in public ownership as well as the strategic and policy issues that would arise should the government privatise it. The bank is expected to come back with a draft report within weeks.
It has found that the airline urgently needs access to capital given the volatile international market where 40% of American carriers are in bankruptcy and Delta, another US airline, is heading that way. Aer Lingus is one of the few carriers making money in the current environment.
However, the bank believes that the airline’s favoured path to private money through a private placing is simply not workable. Goldman Sachs canvassed a wide range of institutional investors and they were “overwhelmingly negative” about the two-step process.
The papers also outline that this is not the best time to offload aviation stocks, but warns that waiting for a good time could prove a false economy. There are no guarantees that further international tension will not put the aviation industry into another tailspin.
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The next meeting of the cabinet subcommittee on the future of Aer Lingus will not be held until after the reshuffle. Seamus Brennan, the minister for transport, and Mary Harney, the tanaiste, are keen to see Aer Lingus freed up to access capital while others, including John O’Donoghue, the minister for tourism, are concerned about landing slots at Heathrow and the airline’s national identity.