Thursday 22 March 2018

Looking for blue skies overhead

Businessman Padraig O Ceidigh may have handed over day-to-day control of the struggling company but he continues to be defined by the airline. By John Mulligan

In the early days of last August, businessman Padraig O Ceidigh says he knew he was facing a stark choice. He'd have to either liquidate Aer Arann or call in an examiner. He chose the latter.

The regional airline, which the former accountant, teacher and solicitor had acquired in 1994, was racking up losses at a rate of knots on the heels of the Icelandic volcanic eruption that grounded flights and a sharply deteriorating domestic economy.

While it later emerged in high court proceedings related to the examinership that the airline had lost €18m between 2008 and August, Mr O Ceidigh reveals that €4.5m of those losses had been inflicted within just a three-month period from the end of last April to July.

But Mr O Ceidigh's enthusiasm is clearly undiminished following the airline's brush with extinction.

"I was on the verge of losing the company, most definitely, but never ever losing the passion for it," said the Galwayman.

Aer Arann emerged from examinership in November after Mr O Ceidigh managed to beat off competition from one other remaining bidder (fronted by a German bank) to re-establish his control of the airline, this time with the backing of stockmarket-listed British transport logistics group Stobart, as well as Tim Kilroe, the son of the original founder of the airline.

The examinership was also a bitter pill for some creditors who received virtually nothing of the debts they were owed.


Stobart will stump up €2.5m to pay for marketing new Aer Arann services to Southend airport in the UK -- billed as a niche alternative to existing airports that serve the capital. In return, Stobart will receive a notional share in the carrier as well as a seat on the board.

Mr Kilroe, a successful businessman in his own right, is investing €2.2m and will also sit on the board. Mr O Ceidigh won't divulge precisely how much he's putting in, but it's believed to be around €1m.

Kerry-based entrepreneur Jerry Kennelly had fronted a consortium that was also willing to invest, but Mr O Ceidigh declined, saying he preferred to plough his own furrow.

As he sits in a hotel just a couple of hundred metres away from Aer Arann's headquarters, close to Dublin Airport, Mr O Ceidigh is adamant that the carrier still has a future.

But he admits that at times during the examiner process he could feel things slipping away from him.

"I could get emotional about it for five minutes and I'd tell myself that I have to control those emotions," he said. "This is part of the journey in life; it's not the journey in life. Quite frankly, I as an individual should not be defining Aer Arann and Aer Arann should not be defining me."

But like it or not, in the public arena at least, that has pretty much been the case. While Mr O Ceidigh had effectively handed over day-to-day control of the airline to, firstly, chief executive Garry Cullen and subsequently to current CEO Paul Schutz, he was always perceived to be the person in the corporate cockpit.

"I am mentally able to separate myself from Aer Arann. I gave it everything I got for the past 15 years," added Mr O Ceidigh. "I put my life and soul into it and put a lot of my own life on standby because of it."

He insists that the only way to grow a business in any economic climate is to be "100pc passionate about it".

But passion doesn't pay the bills. Eventually it boils down to the brutal mechanics of the balance sheet and the profit and loss -- and the aviation industry is a difficult beast to tame. Small fry are continually the victims on the plains, gobbled up and spat out by powerful predators.


So far, Aer Arann, which operates 11 aircraft, has narrowly evaded their jaws and the other perils of the sector.

In late 2008, Aer Arann had embarked on a restructuring process that involved both rejigging terms with creditors and eventually laying off over 60 staff. About €16m from a €90m cost base was stripped out, according to Mr O Ceidigh.

"I didn't go in to build the vision for Aer Arann in order to make money," he claimed. "Aer Arann was built to provide air access primarily to regional Ireland."

If his aim was never to make money, he's had mixed results. In 2004, Aer Arann made a €7.3m operating profit on €70m turnover. Revenues rose to €110m in 2006, but by last year had slumped to €61m and the carrier made a €6.1m loss.

Revenues this year are expected to be above €90m with a €2.1m loss, while in each of the years 2011 and 2012 turnover of €122m is pencilled in as well as an ambitious annual earnings target of €7.6m.

A business plan drafted towards the end of last year had envisaged a €2.5m operating profit for 2010, due in no insignificant part to a franchise agreement that was put in place with Aer Lingus where Aer Arann decked out some of its aircraft (seven of them by next spring) in Aer Lingus livery.

The aircraft are operated by Aer Arann on behalf of Aer Lingus, with the former paying the latter a fee for doing so, while passengers can book the flights via the Aer Lingus website -- a boon for Aer Arann.

Christoph Mueller, the Aer Lingus chief executive, has said the partnership is operating better than had been expected. Between March, when it launched, and the end of July, 100,000 passengers had been carried on those franchise routes.

Aer Arann's total passenger numbers decreased last year by 20pc to 658,000.

Aer Arann has been a somewhat controversial carrier since Mr O Ceidigh acquired it, having established the bulk of its initial revenue base from generous incentives paid in good times by the taxpayer under the European Union-sanctioned public service obligation (PSO) framework.

That allowed governments, here and elsewhere in Europe, to subvent routes between destinations that would otherwise have been loss-making. Between 2002 and 2008 Aer Arann received almost €110m in subsidies. It currently operates five PSO routes -- from Dublin to: Derry; Donegal; Knock; Sligo and Galway -- contracts for which will expire next July.

The reality is that there will be enormous pressure on the Government to terminate the PSOs, not to mention funding to some of the regional airports to which Aer Arann flies.


Mr O Ceidigh maintains he isn't concerned for the airline's revenues with regard to the PSOs, saying the subsidies currently contribute "only" about €13m per annum to its overall revenue base.

He is concerned that regional airports could get short shrift in future budgetary plans, even though realistically it's going to be difficult to justify continuing support for at least some of them into the future.

"I'm chairman of Ireland West Tourism and air access into Shannon, Galway and Knock is critically important for tourism," he maintains.

"One needs to look at the whole socio-economic factors involved before you come to a decision on it."

Meanwhile, Mr O Ceidigh will have his work cut out ensuring Aer Arann can cut the mustard at Southend. It almost appears to be a do or die strategy. The UK regional market is led by FlyBe, which had even been touted as a potential bidder for Aer Arann.

Mr O Ceidigh says Aer Arann is the second-largest regional carrier in the UK and that Southend opens up "new gaps in the market between Ireland and the UK".

"There are 7.5 million people in the region (around Southend) and an opportunity like this does not come up very often. Therein lies, definitely a risk, but also a chance for growth and development."

Aer Arann may have regrouped, but whether it can survive in the long-term is the great unknown. Random external shocks, rising fuel costs, future economic instability -- are just some of the factors that could ultimately sink it.

But Mr O Ceidigh remains convinced the airline has a meaningful and profitable role to play.

He shrugs off speculation from commentators that the airline is ultimately doomed and the riposte is swift.

"That's why commentators aren't entrepreneurs," he says.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business