Tuesday 6 December 2016

Emmet Oliver: Holding Aer Lingus stake just to halt O'Leary no longer acceptable

Published 05/05/2011 | 05:00

Any government (or company) which is borrowing more than half its entire annual revenue either does one of two things -- sells assets or goes bust.

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In Ireland's case the imperative to sell is even more urgent considering the disposition of our lenders. The IMF/EU firmly believe our national debt must be slashed not only via deficit reduction, but also by throwing off cash via asset sales, big and small.

Against that background the continued holding of a 25pc stake in Aer Lingus looks increasingly less like a golden share and more like a vanity share.

Held since 2006, the Government has used the share not to control Aer Lingus from a strategic distance, but to stop Michael O'Leary acquiring the former state-owned carrier.

The use of the share to stymie O'Leary has come at a big cost. The Government has refused to sell at €2.80 a share, but also at €1.40 a share. This week the shares were languishing (when measured against their frothy float price) at €0.83 a share, meaning the market value of the Government's stake has dwindled away while ministers have congratulated themselves on seeing off Ryanair.

Of course there are plenty of good strategic reasons for not presenting the airline to O'Leary -- Ryanair hasn't a jot of experience running a long haul airline for a start. Secondly, why would any country with two vibrant airlines want to replace them with one, especially when the EU Commission has concluded this would ultimately not be good for air travel prices.

There are also many other shareholders who are not keen on selling either, including staff representatives, pilots and businessman Denis O'Brien. When the Government's stake is added, it is a formidable blocking force.

Of course just because the Government is squeamish about selling to Ryanair does not mean it should stand on the sidelines and continue to see the value of the stake eroded (despite the sterling efforts of current chief executive Christophe Mueller).

With the European aviation market coalescing around three major power blocs -- BA/Iberia, Air France/KLM and Lufthansa, the Government needs to achieve two objectives -- sell the stake and halt the erosion of its value, while preserving the duopoly aviation market Ireland has benefited from for the last two decades.

This cannot happen unless one of the three alliances mentioned above are forced into the game and the problem then is that Ryanair is unlikely to be a compliant seller amid a bruising takeover battle.

In fact, an EU Commission report from a few years ago found that no major European carrier was interested in entering the Irish market while Ryanair maintains such huge market power here.

This leaves the Government as a willing seller, but unable to find the buyer it wants. With its stake worth about €111m, there is no rush to sell this piece of chipped family silver.

But equally the zealous desire to curb the grand ambitions of O'Leary is no longer a sufficient excuse on its own to keep the stake. A more convincing case for doing nothing needs to be devised.

Ex-Quinn team unlikely to get benefit of doubt

The staggering bill of €600m for the mess at Quinn Insurance still rankles and various parties are engaged in finger pointing about how the company got it so wrong in the UK market, where losses in 2009 alone hit a catastrophic €333m.

While the Quinn family is blaming the administrators Grant Thornton, the administrators themselves said last September of the 2009 numbers: "These accounts are subject to change.''

The dramatic change came alright, via a fresh actuarial review which found the level of reserves in the UK book were inadequate to deal with rapidly rising claims pouring through from the British market, which was deep in recession by 2009.

Quinn Insurance wasn't the only one getting burnt in the UK general insurance market during 2009 and 2010 however.

Royal Bank of Scotland (RBS) for example blew £300m in 2010 in the same market and barely broke even in 2009.

It is now planning to sell its general insurance arm before 2013.

With other companies also taking a bath in the same market one might think Quinn was simply a victim of poor timing and bad luck.

But it is worth remembering what kind of company Quinn Insurance was in 2009. It had recently been fined €3.25m for failing to tell the Financial Regulator of loans it gave to other companies in the Quinn Group.

Such was the scale of this lapse that the whole corporate governance structure at the company had to be ripped up and reviewed and the board reformed.

In that context it is probably no surprise that few observers are prepared to give the old Quinn board the benefit of the doubt when it comes to apportioning blame for the disastrous UK results.

NAMA had to be seen to win over Ray Grehan

The on-off-on again treatment of Ray Grehan's Glenkerrin Group by NAMA has launched a thousand conspiracy theories in Dublin's development and property community.

On Tuesday evening NAMA finally broke Grehan's resistance and Grant Thornton were sent in a second time to take over his Irish assets (UK assets soon to follow) despite Grehan agreeing to a disposal programme.

NAMA is never going to be liked by anyone in the development scene, but its credibility as an enforcer was on the line over the weekend when the agency felt the need to stand down its receivers as Grehan was given more time.

If NAMA had failed to re-appoint the receivers the second time around, its credibility would have been critically undermined.

The rights and wrongs of the alternative deal Grehan was trying to pull together were irrelevant in that narrow context.

NAMA had to make sure it didn't acquire a reputation for being a pushover.

To show any weakness in such a high profile case could have left it mortally wounded.

The outcome of the Supreme Court case involving developer Paddy McKillen has already eroded some of the agency's credibility. To be seen publicly climbing down against Grehan would have been far worse.

With several other high profile receiverships on the way, NAMA's aim is not to be liked, but to be feared.

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