KAI RYSSDAL: It’s a small airline. A profitable one, too. And in this day and age that’s saying something. Ireland’s Aer Lingus is state owned. But not for much longer. The Irish Parliament signed off on a deal today to privatize the carrier, as Marketplace’s Jeff Tyler reportse:
JEFF TYLER: In the wake of 9/11, demand for flights to the US plummeted. Aer Lingus almost went bust. Instead, it transformed itself into a no-frills discount carrier and is now the second most profitable airline in Europe.
So why mess with success? Analyst Richard Aboulafia with the Teale Group Corp. thinks the next transformation — from state-owned to a private entity — is inevitable.
RICHARD ABOULAFIA: There’s no question that privatization is the future for any airline that wants to have a future because the concept of the state-run flag carrier is basically obsolete.
The airline industry is too competitive. The business requires more time and attention than governments can devote. Compared to American companies, European airlines have one big advantage that helps make them more profitable.
RICHARD GRITTA: The reason, by and large, is low labor costs.
That’s Richard Gritta, professor of finance and transportation at the University of Portland. Gritta says pension obligations are another big drag on US airlines.
GRITTA: What’s sinking US carriers are these defined benefit plans.
Defined pension benefits could also sink Aer Lingus. Gritta is wary of the company’s plan to use some of the money raised in the stock market to pay for pensions.
GRITTA: When I see someone say, “We’re going to stick this in to make up a deficit in the pensions,” and they’re sticking with a defined benefit, I see that’s a red flag.
For better or worse, Aer Lingus is expected to go public in September. And will be traded on both the Dublin and London stock exchanges.
The Irish government will retain a quarter stake in the company to prevent a hostile takeover by a foreign company.
I’m Jeff Tyler for Marketplace.