Thursday, 27 September 2007
Seanad Eireann Debate
Senator Alan Kelly: I welcome the Minister of State, Deputy Máire Hoctor, who is from my own county. I tabled this Adjournment matter in anticipation that we would not succeed in amending yesterday’s Order if Business. Today is effectively D-Day for Shannon Airport. If the motion before the other House is passed, we will be on a slippery slope in terms of the future of the mid-west and of Aer Lingus. It will be detrimental to the entire western region from a business, social and tourism perspective. I will not go into the details because everybody is aware of them.
The Government motion refers to its “disappointment” at Aer Lingus’s action. It is the function of Dáil Éireann to take action, not to agree motions of disappointment. I have never heard of such a motion before. My colleague, Deputy Michael D. Higgins, who met representatives of the Workers Alliance and Atlantic Connectivity Alliance yesterday, asked whether we can now expect Dáil Éireann to start crying because it is disappointed about this issue. What we want from the Dáil is action. The motion is simply a smokescreen to cover the Government’s lack of direction on this issue.
I am particularly disappointed with the position taken by the mid-western representatives in the Dáil, including those from my own county. They have had no fixed position on this crisis. At the outset, the Government claimed it could not intervene in this matter. I notice, however, that all subsequent announcements have claimed that the Government will not intervene. I daresay it is more accurate to say they will not intervene rather than they cannot do so. My party does not oppose the privatisation of Aer Lingus on ideological grounds but because we believe in the economic philosophy of externality, whereby market forces do not always deliver.
I have met workers’ groups and the Atlantic Connectivity Alliance and believe they made their case very well. What was the intention of the then Minister for Transport, Deputy Cullen, when he privatised Aer Lingus? He does not exactly have a track record of producing results but this was the biggest of his many mistakes. The privatisation process was botched. The Minister stated in the Dáil that the 25.4% shareholding mentioned in the articles and memorandum of association were enough to ensure that the airline’s slots, including those in Shannon, would be protected. If that is the case, why is the Government not using that shareholding to intervene? What is the point otherwise in keeping the stake?
I was interested to read the comments of representatives on the issue, including a letter to a newspaper by Senator Mary White in which she asked, “If this shareholding was not intended to influence the strategic development of the company in support of the Government’s vision for the country, what purpose was envisaged for it?” I ask the same question. The entire issue was addressed with a form of thinking that beggars belief.
The Aer Lingus route between Shannon and Heathrow is the only sustainable option. Other hubs and airlines are welcome if they connect to Shannon but they will not be able to match the level of business and tourism represented by Aer Lingus. Why give up this profitable route in the first place? It was one of the few routes on which the airline did not have to drop its prices.
Senator Alan Kelly: Currently, there are eight flights from Belfast to Heathrow, whereas there is no competition on the Shannon-Heathrow route. British Airways has already quit Aldergrove. Is it not the long-term goal of Dermot Mannion to move long-haul slots from Heathrow to New York and elsewhere?
I ask the Government to use its shareholding to intervene on this issue. It is important to do so before we enter a scenario in which the interests of the area’s businesses and workers are detrimentally affected or face a legal quagmire in which those involved study the definitions contained in the articles and memorandum of association, particularly the words “transfer” and “disposal”.
Last October, prior to the sale of Aer Lingus, a clear statement was made to the effect that four slots must be retained between Shannon and Heathrow for the economic benefit of the region. That was Government policy and was reflected in the articles of association. Shares were purchased in the airline on that basis. I feel some sympathy for the Minister for Transport because I think he has been sold a pup. The company has decided to ride roughshod over the policy the Government put in place to protect regional interests, to ensure connectivity and to attract business and tourists to the region.
Senator Ross had a point yesterday when he asked why the Government does not simply sell the remaining 25%. However, I do not agree with the Senator on selling the shareholding because we need to make use of it. I am a shareholder in a business, as are many other Members, and if we owned a 25% share, we could use it to force an extraordinary general meeting. It is not beyond the wit of the Government to force Aer Lingus to hold an EGM on this issue and I would encourage it to do just that.
Minister of State at the Department of Health and Children (Deputy Máire Hoctor): It is a pleasure for me to address the Seanad on this, my first occasion to do so. On behalf of my colleague, the Minister for Transport, Deputy Noel Dempsey, I would like to take this opportunity to clarify the Government’s position regarding its 25% shareholding in Aer Lingus.
The fundamental purpose for which the initial public offering was undertaken was to create a commercially independent Aer Lingus with access to the capital markets which would serve the Irish economy more effectively than an Aer Lingus in ongoing State ownership and subject to the constraints of state aid rules. We can see the positive results of this decision in terms of new services being developed. In particular, we have seen a major expansion of transatlantic services, where during the coming winter the company will serve seven cities in the US in comparison with four previously. The IPO also made it possible to raise new equity to support the future payment of pension increases and thereby address a key concern of the Aer Lingus trade unions and workers. Without an equity injection, the company would have faced major difficulties in addressing these needs while maintaining its competitiveness in a challenging market.
Regarding the measures undertaken to protect strategic interests in the context of the privatisation of Aer Lingus last year, the State retained a strategic shareholding of more than 25% with two key objectives in mind. It provides a major block to a hostile takeover by enabling the State to prevent a compulsory takeover of 100% of the company. Even if the company were acquired, Aer Lingus would have to continue to be operated as a separate entity. Furthermore, the acquiring entity would not be able to extract the Aer Lingus assets, including slots and cash. This provides a significant disincentive to hostile takeover attempts.
The second strategic advantage of a 25% shareholding is that it enables the Government to protect the memorandum and articles of association of the company. This ability to block special resolutions to change the articles provides a safeguard against any disposal of Heathrow slots. The senior officials group report states that disposal of slots relates specifically to the sale of slots and the transfer of slots between airlines and does not apply to the reallocation of slot pairs to new or existing bases.
However, the Government’s legal advice is that, having regard to the duties of the board of directors pursuant to the Companies Acts and the memorandum and articles of association of Aer Lingus, shareholders do not have the power to overrule management decisions on business matters. In effect, this means even if the Government on its own or in combination with other shareholders called an EGM and voted for the restoration of this link, the management of Aer Lingus is not obliged to follow any directions from the shareholders regarding business matters or to obey any resolution regarding such matters.
Deputy Máire Hoctor: Although the articles of association of Aer Lingus make specific provision for shareholders to intervene in the event of a decision by the company to dispose of Heathrow slots, these provisions are not relevant in the present context where no transfer of ownership or disposal is proposed.
The advice from the Attorney General has been clear and unequivocal, and arising from this advice the Government has decided that it would be inappropriate to intervene in the decision of the company. To do so would ultimately damage to the company and its customers.
Senator Alan Kelly: I appreciate the Minister of State’s response. I acknowledge that legal advice should be heeded but the advice given to the businesspeople and workers is contrary to that given to the Government. Legal advice to the effect that shareholdings cannot be used to change management’s opinion does not mean a vote of no-confidence cannot be taken to change the decision-making process. I ask the Government to take that step and I would like to hear the Minister of State’s opinion on the matter.
Deputy Máire Hoctor: A number of limitations arise under article 84 of the articles of association with regard to the right of a shareholder to overrule Aer Lingus management on business matters. In law, the directors are responsible for managing the company’s business and the shareholders are not entitled to overrule management’s decision on business issues by way of a resolution passed at an EGM. Directors are not obliged, as a matter of law, to follow any directions from the shareholders regarding business matters or to obey any resolution pertaining to such matters.
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