Aer Lingus chief executive Lynn Embleton said something very unusual last week. Something that should be pretty worrying for the Government, everyone who works at the airline and for the entire tourism sector here.
s Embleton described the challenges faced by the airline arising from Covid-19. She also talked about the airline’s new base in Manchester which flies transatlantic to the US and the Caribbean.
Then she said it: “The centre of gravity of Aer Lingus, I want it to be Dublin.”
She didn’t say, it is Dublin and always should be. She said she wanted it to be Dublin, which automatically implies the location of its centre of gravity is somehow uncertain.
Or perhaps her comments were aimed at the Irish Government which has presided over harsh international travel restrictions and which is said to be in discussions about further financial support to the airline.
The comments come against an extraordinary backdrop for Aer Lingus which is part of the larger IAG group behind British Airways and Iberia.
Aer Lingus is the most troubled of the airlines in the wider group and it lost a staggering €103m in the first quarter of 2021. That is about €1.1m per day.
To put it in context, Lufthansa, Europe’s largest airline before the pandemic, burned cash at a rate of €235m per month in the same period. Aer Lingus is just a fraction of the size of Lufthansa.
Luis Gallego, chief executive of IAG, warned that continuing onerous travel restrictions in Ireland have forced it to consider steps that need to be taken to enable the airline to continue operating. So Aer Lingus is essentially fighting for its survival.
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Late last year it borrowed €150m from the State’s Irish Strategic Investment Fund (ISIF). The terms of the loan have not been disclosed but it is pretty obvious that it is a drop in the ocean given it would last just over a month at the current rate of churn.
Companies Office filings show that the main Aer Lingus company received a €900m capital injection, presumably from its parent group, just before Christmas.
Aer Lingus Group DAC allotted 900m new shares at a price of €1m per share to an entity called LDI (OCS) Ltd, which is managed by Law Debenture Ireland, an investment trust company based in Dublin.
The former State airline had prospered extremely well since it was taken over by IAG. It enjoyed a stellar year in 2019 ahead of the pandemic and the wider group has invested in developing its Dublin operation as a transatlantic hub, flying to more North American destinations.
But much of this progress has come crashing to an end. The parent group is one of the better capitalised airline holding companies in Europe having raised fresh capital on equity markets last year.
Now the spotlight will turn to the summer ahead and whether there will be much of summer at all from an airline perspective.
Aer Lingus faces a number of crunch tests, not least how quickly Ireland moves away from its international travel restrictions which have been the harshest in the EU.
Even as the vaccination rollout gathers pace and less restrictive international travel resumes, it is far from certain how much capacity will be laid on by airlines serving Ireland and how quickly they might get back to 2019 service levels.
Airline capacity and connectivity cannot be turned back on as quickly as it was turned off.
Clare Fine Gael TD Joe Carey wrote to Aer Lingus recently expressing concern about the possibility that transatlantic services from Shannon Airport will not resume until 2022, with both February and June mentioned as potential return dates in local speculation.
Aer Lingus management have little comfort to give. Ms Embleton said last week the airline had two issues – restoring the balance sheet and the financial health of the business.
The airline has already shed 600 jobs. More cuts could be on the way.
“That is going to require coming out of this crisis more efficient than we went into it. That in itself is going to need changes in productivity and efficiency within Aer Lingus”, she added.
The airline has already shed 600 jobs. More cuts could be on the way.
Aer Lingus management have told analysts that the summer months are still to play for.
So what can the Government do? If Aer Lingus needs financial support from the State then it should be given. The crisis caused by the pandemic has been unprecedented.
Despite the fact that Aer Lingus is owned by a major international group, if it needs financial assistance, everything should be done to facilitate that.
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On what terms? Should the State help support a major airline to facilitate its expansion in the UK at the expense of connectivity from Ireland? Probably not.
Should the Government insist on some kind of strings attached to a financial support package? It should, and those measures could focus on retaining connectivity.
Lufthansa received a €9bn state bailout from Germany last year. The airline is now working on a plan to raise around €3bn in equity to help repay some of that state coronavirus bailout.
It seems a little odd that the airline is in a hurry to repay the state, especially when the industry is far from out of the woods yet. The German state bailout had some strings attached including restrictions on executive pay and merger and acquisition activity.
If the industry is on the cusp of a massive post-Covid rebound, then why not wait to raise capital. Alternatively, Lufthansa and others may be nervous about the scale and duration of any rebound so now is a safer bet.
The government should talk to Aer Lingus with an open mind, but with strings attached.