A bitter blow for former school teacher O Ceidigh
Published 27/08/2010 | 05:00
Originally founded in 1970 to provide an air service between Galway and the Aran Islands, Aer Arann remained a small regional airline until it was purchased by Padraig O Ceidigh -- a former school teacher who remortgaged his home to fund the deal, in 1994.
Under O Ceidigh, Aer Arann embarked on an ambitious expansion strategy. From 1998 onwards it scooped up most of the PSO contracts awarded by the Government to subsidise regional air routes. And by 2004, the last year before Aer Arann became an unlimited company, it recorded sales of over €70m and pre-interest profits of more than €7m. The airline's sales are understood to have grown to €110m by 2006.
By the middle of the last decade Aer Arann was being spoken of as the "third Irish airline" after Ryanair and Aer Lingus.
Unfortunately, Aer Arann's growing stature may have proved to be its undoing. All of those gongs and, more importantly, the government money it was raking in from PSO contracts -- an estimated €12m a year -- began to attract covetous glances from Ryanair boss Michael O'Leary.
And in 2005, Ryanair bid against Aer Arann for the PSO contract on the Kerry-Dublin route. Although Aer Arann retained the contract, it was forced to slash the subsidy it was seeking to operate the route. Three years later Ryanair snatched the Kerry route, while Cityjet won the PSO contract to operate the Knock-Dublin service. The only consolation for Aer Arann was that it won the PSO contract to operate the new Derry-Dublin route.
The loss of the PSO contracts was the first indication that all was not well at Aer Arann. Like most airlines, it had been hit hard by the credit crunch. In April 2009 it was announced that its staff had accepted a 7pc pay cut, while management salaries had been slashed by 17pc.
Then, in August 2009, O Ceidigh revealed that he was seeking outside investors to invest up to €10m in Aer Arann. This was followed by a further announcement from O Ceidigh in December 2009 that the restructuring of its debts was "80pc complete". Aer Arann was clearly feeling the heat.
Then in January of this year it seemed as if Aer Lingus had offered its rival a lifeline when it entered into a franchise agreement under which Aer Arann was to operate a number of routes on its behalf to the UK and France. Unfortunately for Aer Arann, Christoph Mueller, the hard-as-nails Aer Lingus boss doesn't do philanthropy -- with many aviation analysts wondering if he was merely off-loading marginal or loss-making routes on to its smaller rival.
However, the final nail in the Aer Arann coffin was almost certainly the recommendation from An Bord Snip Nua that PSO contracts should be scrapped. With Transport Minister Noel Dempsey having already signalled that most of them wouldn't be renewed next year, O Ceidigh had no choice but to press the ejector button at Aer Arann.