By Paddy Clancy

THE government is to sell off part of its share in Aer Lingus but critics say the flotation price which will value the company at up to $1.2 billion is too low.

They claim the move, effectively privatizing the state-owned company, is a raw deal for the taxpayer.

Several commentators claimed the shares would have been worth considerably more a year ago, but “dithering” by the government over its plans delayed the flotation decision until this week.

Prominent financial commentator, Independent Senator Shane Ross said, “The taxpayer is being short-changed.”

And the Labor Party’s transport spokeswoman Roisin Shorthall said there was no convincing case for privatization. She insisted, “This is possibly the least positive time since 2001 to be putting an airline on the market.”

She cited high oil prices, security concerns and delays in getting an open skies deal. She said there was nothing to stop the government investing directly in the company, and there was nothing to protect the government’s 25.1% share in the long term.

But supporters of the move maintain it’s the only sensible option to raise much-needed cash to fund the expansion of the airline which, until quite recently, struggled for survival in the face of stiff opposition from low fare operators, especially Ryanair.

Although Transport Minister Martin Cullen flagged the flotation before the Dail (Parliament) broke up for the summer, few believed it would happen in the near future – until his second announcement early this week that the airline and the government has laid out a timetable for the flotation of a majority stake.

Shares will be offered to institutional and retail investors by the end of September.

Since 1999, when the government first decided to privatize Aer Lingus, three chief executives all attempted in turn to get the job done, but none succeeded.

Current CEO Dermot Mannion is perceived by the business community as the boss most likely to succeed. And now, successful privatization is reckoned to be more likely than at any time in the past seven years.

Negotiations with trade unions resulted in workers being given what business leaders regard as one of the most attractive incentive packages ever offered to any group of Irish employees – all to secure the future of a company which they partly own.

Financial results for the first six months of 2006 are expected to show operating profits are broadly in line with last year’s figures, although revenues have been hit by fare reductions.

Staff at the company will retain their 14.9% shareholding, although they will have to use some of their own funds to buy shares and prevent any erosion of this position. The government is to retain at least a 25.1% stake in the airline.

Under a deal between the company and the unions, part of a recently agreed pay rise will be used to buy shares on behalf of staff. Their shareholding, held by an employee trust, would be worth more than $190 million.

That would value the stake of each of the 3,475 employees at an average $55,000.

Cullen moved to allay public fears that the share values could flop as they did with the privatization of telecommunications company Eircom in 1999 — widely regarded at the time as a fiasco in which thousands recovered only a percentage of savings they plunged into the project.

He said the approach to the Aer Lingus flotation would be radically different. “This will not be an all-singing, all-dancing approach,” Cullen said.

“This is the right decision for the company, its employees, customers and Ireland, and it is taking place in order to give Aer Lingus both the commercial flexibility and the financial strength to succeed in what is a highly competitive global marketplace.”

Aer Lingus intends to use money raised from the stock exchange flotation to help fund a $2.6 billion expansion of its fleet. Most of the cash will be spent on its long-haul business where new routes to the Far East and South Africa are being mooted.

The company has already begun talks with Airbus and Boeing with a view to purchasing new aircraft.

The government is being advised on the sale by UBS and AIB Capital markets. They will act as joint global coordinators and joint book runners to the offer.

Aer Lingus is being advised by Merrion Stockbrokers and Goldman Sachs. They will act as joint lead managers.

Despite market jitters in the wake of the terrorist alert a month ago, the four advisors have largely stuck by the valuation range – between $960 million and $1.2 billion – which they indicated to the government and the company earlier this year.

Aer Lingus will have its primary listing on the Irish Stock Exchange, a secondary listing on the London Stock Exchange, and a private placement of shares in the U.S.

David Begg, general secretary of the Irish Congress of Trade Unions, is to be appointed to the Aer Lingus board to represent the interest of employee shareholders.