pilot in a tailspin
Pressure is mounting on the beleaguered airline boss to start pulling out of the nosedive
This week's disastrous Aer Lingus results, which showed the formerly State-owned airline on track to lose €60m in 2009, have further ratcheted up the pressure on embattled boss Dermot Mannion.
The market was expecting bad news from Aer Lingus when it published its 2008 results.
It wasn't disappointed, with the airline losing a massive €120m after restructuring costs of over €140m.
However, it was what the company had to say about its likely 2009 performance which really frightened the market. Aer Lingus warned investors that its operating (pre-interest) losses in 2009 would be worse than the €17m loss recorded in 2008.
While the company itself isn't saying what its operating profits will be in 2009, Merrion Stockbrokers is pencilling in a massive €60m of operating losses for this year.
This is despite Aer Lingus taking a €117m restructuring charge to allow it to cut staff numbers and reorganise work practices.
The restructuring programme is supposed to save Aer Lingus €52m a year in staff costs when fully implemented.
In 2008, Aer Lingus was clobbered by a combination of higher fuel costs, lower yields and reduced fares. The airline's fuel costs soared by 58pc to €401m, yields (the proportion of the available seats sold) dropped by 2.6pc to 72.8pc while the average fare fell by 4.6pc to €115.
Short haul
Aer Lingus has been hit particularly hard on its short-haul routes where the average fare fell by 6.4pc to €87.75. This was only partially offset by a 2.6pc increase in the average long-haul fare to €304.49.
This meant that, despite carrying 10 million passengers, a 7.5pc increase on 2007, Aer Lingus's revenues grew by only 5.6pc to €1.35bn.
Even this figure looks better than it really was with most of the increase having come from a €41m (37.7pc) increase in ancillary revenues (mainly on-line booking fees and baggage charges).
Strip that out and the underlying increase in passengers revenues was a mere 2.6pc.
With revenues virtually flat and its restructuring programme failing to return the airline to the black Aer Lingus is beginning to eat into its cash reserves.
Its net cash position declined from €757m at the end of 2007 to €654m by the end of last year. Unless the airline can staunch this cash haemorrhage its long-term future must be in doubt. Aer Lingus needs that cash to fund its €1.8bn fleet replacement programme.
If, instead, it is frittered away to fund operating losses on its day-to-day activities, then it is difficult to see the airline surviving even into the medium term.
The seemingly never-ending stream of bad news flowing out of Aer Lingus is finally beginning to exhaust the patience of investors.
Aer Lingus was floated at €2.20 a share in October 2006. The flotation party was crashed by its bitter rival which bid €2.80 for the company. Even when the EU Commission gave the thumbs down to the Ryanair bid in June 2007, Michael O'Leary's company retained the 29 per cent Aer Lingus stake it had accumulated.
Hostilities
Last year Ryanair renewed hostilities with a reduced offer of €1.40 per share. This bid was withdrawn when Transport Minister Noel Dempsey refused to pledge the State's 25pc Aer Lingus shareholding to Ryanair. By this week the Aer Lingus share price had fallen to just 57 cent. Sticking with Aer Lingus has cost its shareholders a lot of money.
All of which spells trouble for Dermot Mannion, who succeeded Willie Walsh as Aer Lingus chief executive in 2005. Unlike his high-profile predecessor, who went on to become boss at British Airways, Mannion has generally preferred to shun the limelight during his almost four years at the controls of Ireland's flag carrier.
Walsh was never going to be an easy act to follow. Unlike his predecessor, who had originally trained as a pilot, the Sligo-born Mannion qualified as a chartered accountant with Arthur Young (now part of Ernst & Young) after graduating from Trinity with a degree in business studies in 1979.
After qualifying as an accountant, he spent a few years with Ulster Bank before moving to Dubai to work for Emirates Airlines.
He spent 16 years with Emirates, gradually worked his way up the ranks, becoming finance director in 1995 and president of group support services in 2003.
Mannion (51) maintained his Sligo links throughout his time in Dubai, He and his wife Ann, who have four children, travelled home regularly and kept a house in the Sligo area.
The recruitment of Mannion was part of a strategy aimed at floating Aer Lingus on the Stock Exchange.
However, the Aer Lingus flotation was hamstrung from the beginning.
Not alone did the State insist on retaining a 25pc shareholding, the workers also got 14.9pc of the company through an employee share ownership trust (ESOT).
Throw in the Government's need to ensure that at least 52 per cent of the shares were held by Irish investors and the scene was set for a right mess.
After having had such a convoluted ownership structure foist upon him, Mannion can hardly be blamed for the botched flotation.
However, the events of October 2006 mean that Aer Lingus has ended up with the worst of all possible worlds.
The Government is refusing to sell its shares to Ryanair while the Ryanair shareholding makes it impossible for anyone else to bid for Aer Lingus.
Even so, Mannion's performance at the Aer Lingus controls hasn't always set the pulse racing.
The two-year delay in getting the over-mighty Aer Lingus trade unions to agree to much-needed restructuring was unconscionable.
This reinforced the impression that Mannion, who was appointed to the job following Bertie Ahern's very public rejection of Willie Walsh's MBO proposal, was reluctant to rock the boat at the politically sensitive Dublin Airport.
Unfortunately for Mannion, whatever degree of political protection he enjoyed almost certainly vanished when it was revealed last January that he stood to receive up to €2.8m if he left the company following a Ryanair takeover.
Ryanair, not surprisingly, derided the proposed payments as a "failure fee", while Transport Minister Noel Dempsey blew a gasket, boycotting the farewell dinner marking former chairman John Sharman's retirement.
The retirement of Sharman last year and his replacement as Aer Lingus chairman by former GPA executive Colm Barrington was generally reckoned to have weakened Mannion's position.
Mannion was perceived to have been Sharman's protege while his relationship with Barrington is a more distant one. Whatever the truth of these reports there is no doubt that Barrington, who has a knowledge of the global aviation market unmatched by any other Irish airline executive, is impatient to sort out the deep-rooted problems at Aer Lingus.
With the company's performance deteriorating, the pressure is rapidly mounting on Mannion, who has occupied the chief executive's job for almost four years now, to turn the company's fortunes around.
Having already been Aer Lingus boss for longer than Willie Walsh, there is no longer any room for excuses.
Unless Mannion starts to deliver soon Barrington may have no choice but to find a new pilot to navigate Aer Lingus through these turbulent times.
