Corporate Finance for Dummies

I'll come clean at the outset. I'm no corporate finance whizz kid. I wouldn't know a leveraged buyout from a mezzanine-funded IPO. The height of my financial management track record was recognising that the Eircom floatation was a pup and that McCreevy's SSIA offer was a 4-for-1 gift horse too good to miss. Those of you with property investments in Bratislava, a section 23 pad in Drumshambo and a 7-series on hire purchase, can choose to ignore the rest of this blog. The rest of you pay attention.

Aer Lingus is a state asset. Assets have value which rises and falls. Like any asset, you need to maintain it, use it or you are better off losing it. Aer Lingus needs an injection of cash to purchase new aircraft. Otherwise it will soon be a worthless asset. Our agents, the Government, have a choice. They can either invest in new stock themselves or they sell the asset off to someone who will sweat it properly (i.e. sell it's Heathrow landing slots and close down the provincal airline). Holding assets that you don't use is a cost to the owners. Assets can only be sold once. So if you sell an asset, you should use the funds raised for capital investment not to fund recurrent expenditure.

Choosing to hold or to sell is a strategic decision which has to be made on the balance of the options. (I can offer advice here although you might have to beg for it!) (By the way, I don't buy either the 'strategic importance' of the National Carrier or the 'market will decide' philosophies of either side.

The one option that makes no sense (and hence the most likely outcome) is to sell a bit of Aer Lingus. (This satisfies the Unions who see it as a way to protect their comfortable jobs. Look at the US Airline industry to see the long term consequences of such myopia.) No-one will pay for a part of an airline that they can't control. And the amount of money raised will hardly buy a tailfin let alone a new fleet. This is a stupid option.

Paige,
Financial Consultant to the Stars


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