Apr 2006

Privatising Aer Lingus

I watched the weekly political debate show, Questions & Answers, last night. It confirmed all my worst fears about the corporatisation of politics. You’ve no idea how much it annoys me that the field of debate has been so narrowed; that mainstream politics has been reduced to a few ever-so-slightly differentiated shades of capitalist grey. The politicos on the panel were a Labour TD (TD = MP) representing the left, a government minister representing the centre, and an independent Senator representing the right.

The first question asked whether or not the privatisation of Aer Lingus “represents a good deal”. Now, it’s only since I’ve returned to Dublin that I realised Aer Lingus (Ireland’s national airline) was still state-owned. Not only that, but it is currently – relative to its size – an extremely profitable airline. In the past, during downturns in air travel or during periods of mismanagement, the company has required government / taxpayer support. Now that it is doing well, the current government (plus the main opposition party) think it’s a good idea to sell it off.

Presumably the idea is to make some quick cash on the deal before peak oil wipes out the airline industry. And regular readers might think I’d be in favour of that… offload an asset soon to become damn near worthless into the hands of a bunch of market speculators. Use the money to build a few hospitals. What could be wrong with that? Well. Quite a lot actually.

Am I never happy?

Well, yes. But not when a bunch of centre-right oafs are blundering around the country, selling off any public asset that isn’t nailed down. I once wrote that I believed Britain could still be defined, loosely, as a socialist nation up until Thatcher sold off the energy and communications infrastructure. By doing that she made a bunch of money for the already wealthy and ended the ability of the British public to control their own economy.

Recently this Irish government has flogged the telecommunications system, converting its legal status from “service provider” to “profit engine”. It’s interesting to note that investors are very happy with the deal, but the Irish citizen is less so. Leastways that’s the portrait painted by the media. Thankfully it looks as though energy production will remain public at least until capitalism begins to visibly decay (and hence, indefinitely). So Ireland is – in a specific, but very real sense – still socialist to a degree. As of right now, the public still owns significant assets, significant elements of the economic infrastructure and can exercise control over those assets through their democratic representation.

Few things piss me off more than watching politicians; the peoples representatives; shake their heads and meekly (or even worse, condescendingly) state that they can’t do anything about a social problem because it’s in the hands of private enterprise. For years successive British transport ministers agreed that the rail system was deteriorating, but told the public that they had no control over the way private companies are run. It makes me want to wring some necks.

Which brings me back to Questions & Answers and the subject of privatising Aer Lingus. The very first thing that should be pointed out is that this is a godawful deal. Even if I dust off that capitalist hat I tried on for size back in the 90s, the fact is – if you were going to privatise an airline, you really wouldn’t do it this way. The government intends to retain a significant, but minority shareholding in the company. This means there’s a siginificant reduction in the amount of shares being sold, and a consequent loss of income. On top of that, by retaining an influence on the company board of directors, it makes the whole airline less attractive to private investors who will worry about “government meddling” and fear that they won’t be able to make the business as profitable as they would like if it was required to go against the policy of the government of the day in order to do so (a government that could be Green or Leftist or anything in 10 years).

So essentially; from the point of view of the taxpayer, the government is nigh guaranteeing the lowest possible price while at the same time ceding control over the asset. And from the point of view of the capitalist, the government is retaining the right to interfere with how a private company is run, and thus making the whole venture far less likely to succeed commercially. On top of all that, the newly privatised company intends to borrow at least as much as it earned from the floatation as soon as privatisation is completed. Possibly significantly more. All of which reduces the price that investors are willing to pay for those shares that are made available.

Given the likely direction to be taken by the airline industry in the face of peak oil, this will result in the collapse of the privatised Aer Lingus within about 10 years. Probably less given how deeply in debt they will be. And there’ll be very little the government will be able to do about it, except wait until the company runs itself into a massive mountain of debt and bail them out at an absurd cost to the exchequer. Far, far more than was gained in the sell-off.

But hey, I’ve no doubt a bunch of already-wealthy speculators will make a small fortune in the immediate aftermath of the privatisation. So that’s alright then. Once the government looks after them, the average citizen can rest easy knowing he or she only has to become a millionaire and they too will be represented by the people they vote for.

Market disengagement instead of privatisation

What should be done is obvious. Market disengagement. And what annoyed me about Questions & Answers was the fact that not a single member of the panel even hinted at having thought in these terms, let alone giving them the headspace to examine seriously. The Labour TD was opposed to privatisation, as are her party. Credit where it’s due. However her objections were all about practical issues. It’s as though the notion that there may be an ideological debate to be had was somehow quaint. Faintly embarrassing. You got the feeling that perhaps she had convictions, but wouldn’t dream of admitting that in public… so if you could demonstrate that “the deal was good” for the taxpayer that all would be well.

She even resorted to the bland buzzwords of doomed capitalism. About how “everyone wants to see” Aer Lingus compete well in the marketplace. About how “of course” we want to see the company grow and expand into new routes and markets. Sheesh… doesn’t anyone actually believe anything anymore? I mean aside from The Race For Profit Is A Race That Must Be Won.

I was reminded of Douglas Adams’ wonderful observation about the BBC…

Television companies are not in the business of delivering television programs to their audience, they’re in the business of delivering audiences to their advertisers. (This is why the BBC has such a schizophrenic time – it’s actually in a different business from all its competitors)

You see, it is my belief that a state airline should not be trying to “compete” at all. In the marketplace or anywhere else. It should be run, like any other state asset, in a manner that can best serve the Irish public. Everyone on the panel, and – it seems – everyone in the Irish media, believes that Aer Lingus needs significant new investment to buy more planes so that it can expand. But that’s complete nonsense. It is not the best way to serve the Irish public. The last thing Aer Lingus should be planning is expansion.

Small is beautiful

Look, the airline business is at its peak right now. Maybe another two years… maybe three tops. After that, it’s permanently downhill for jet-engined passenger flight. But I accept that whatever commercial flight does still exist during the next 10 or 15 years will look something like its present form. There’ll just be a lot less of it, and it’ll be much more expensive. Eventually it’ll die completely and all international flight will be done in slow solar-powered dirigibles, and the enterprise will become rather sedate and civilised, with dining rooms and cool observation decks and everything (that’s the optimist talking… I usually keep him locked in the cellar).

But until then, and while modern air travel is gasping its last, there will remain a need for scheduled flights to and from this country. It is the job of a state airline to provide that service as effectively as possible. It is not its job to compete with other airlines in the lucrative low-cost short-haul market. Nor its job to expand into another five US destinations and provide the Irish consumer with more choice. Its job is to ensure that Irish people can get to and from wherever they need to go, whenever they need to go there. That this island does not become isolated before anywhere else. Climate change activists may not like this job, but all the same, that’s what it is.

And to this end, the best strategy is to begin reducing the size of the company and securing its ability to do two things very very well. Getting people to and from Heathrow efficiently. And getting people to and from New York efficiently. From Heathrow there are connecting flights to every major city in the world. From New York, to everywhere in America.

Over a period of a couple of years, Aer Lingus should sell off its entire fleet with the exception of those aircraft required to service New York and London. This would almost certainly (bizarrely) net the government more than the sale of the company as a whole. Of course, the workforce and the unions won’t like that very much. And that’s where the traditional left is really coming from with its desire for expansion.

But look, these are well-trained professionals by-and-large and they’ll be beating the rush. The entire industry is going to be shedding jobs before too long; let the Aer Lingus staff get that particular skillset into the job market before the others. And by losing their jobs because of a deliberate scale-down and asset sale, they can get very generous redundancy cheques; unlike those who lose their jobs through bankruptcy. The rest of the money from the asset sale (planes cost a lot of money, I’m sure there’ll be some left over) can make up the current pensions deficit in the company.

Those two routes alone may not make a profitable company. I honestly don’t know. But even if it didn’t, I’m certain it could be done efficiently enough so that the shortfall in the running costs won’t cost the taxpayer too much. And in return for that small tax burden, Irish people know that they are securely connected to the rest of the world via a service they themselves own and control. At least until either Heathrow or New York cease fulfilling their function due to peak oil… but I guarantee you that a privatised Aer Lingus will go under before that happens.

Capitalists will complain of course. Blah blah blah government subsidies blah blah blah restrictive practices unfair competition blah. And yes. It’s all those things. Even the blahs. What part of “anti-capitalist” don’t you understand? But hey, just think of all the fun the other airlines will have fighting for scraps… expanding into the routes abandoned by Aer Lingus… after all, if Aer Lingus is selling the planes, someone is buying (and it’s a little known fact that there’s a shortage of commercial jet aircraft in the market at the moment… airlines are placing big orders and having to wait years for delivery… right now, it’s a sellers market).

Many on my side of the barbed wire may be looking at me a little askew also. Am I trying to put forward some kind of sustainable jet airline industry idea here? Preaching business as usual? Isn’t that precisely what I criticise the mainstream environmental movement for doing? Well yes, that is what I criticise the Greens for, but no that’s not what I’m doing.

If tomorrow I were ordained God Emperor, then it’d be solar-powered dirigibles or nothing. So get those thinking caps on over at JPL, you folks are very very smart, I’ve no doubt you can adapt to a new specification and come up with some wild new ideas. The reality is, whatever way you cut it, the airline industry – in its current form – will not survive.

However, what would I do in the unlikely event that I’m not made God Emperor, but instead merely put in charge of Aer Lingus and given a specific brief… “Turn this profitable company into a public service and ensure that Ireland is connected to the international transport network so long as that network exists”.

And well, that’s what I’d do.

Posted in: Opinion