Aer Lingus's goal of becoming a leading low-cost airline has been hampered by a lack of capital, according to an investment bank's report to the Government, which was published last night.
Aer Lingus's strategy, Goldman Sachs said in its report, has been to transform into 'one of Europe's leading low-fares airlines and a pioneering profitable long-haul, lower-fares airline,' but it has faced stiff competition.
'If Aer Lingus sees its primary competition as the low-cost carriers, it may be disadvantaged with a significantly weaker capital structure than those carriers,' the US bank said in its report.
'The most successful airlines in the current and evolving landscape view financial strength as a competitive issue and seek to maintain low levels of debt,' the report continued.
The document examines a range of options for the future ownership and financing of the state airline, including its possible privatisation. It advises against a full sell-off of the state airline, but suggests that a partial sale through the stock market could be successful.
Aer Lingus is expected to make about _100m in profit this year, but needs funds to develop and, in particular, to replace its long-haul aircraft fleet.
The airline is still reeling by the resignation last week of chief executive Willie Walsh, chief financial officer Brian Dunne and chief operations officer Seamus Kearney, who have been closely identified with the improvement in the company's performance.
The three, who will leave in May, had at one stage planned a management buyout of the company but the proposal was ruled out by Taoiseach Bertie Ahern.
The Goldman Sachs report said that if it was to remain state-owned, Aer Lingus, while it is well capitalised at present, would have to be more conservative than its competitors since access to capital was constrained.
'Aer Lingus is disadvantaged with respect to its competitors. In periods of distress the future of the airline may be threatened,' it said.
It said there were two broad capital structure policy alternatives: either the 'low-cost' model like competitors Ryanair and easyJet, and the 'traditional airline' model with relatively high levels of debt such as Air France and British Airways.
