Aer Lingus flying high -- on its own

Not many of the world's government-owned international airlines can avoid occasionally hooking up to the national treasury for some fiscal fuel. But for 16 of the past 20 years, Aer Lingus has turned in a profit to its only shareholder, the government of Ireland. And apart from an initial subsidy phased out in 1950, the company has not had to turn to the government for any finance -- preferring to borrow from commercial banks.

Since Aer Lingus took off in 1936 with modest service in the United Kingdom, the Irish airline has established itself as a major carrier in Europe and on the North Atlantic.

Behind the airline's success lies a strategy of diversification into related industries, says David Kennedy, its chief executive. In the last decade, the company branched out to:

* Market its own computer expertise.

* Provide maintenance and overhaul facilities to other airlines, mainly in Africa.

* Offer technical and managerial training in Africa.

* Build the London Tara Hotel.

* Invest in the Guinness Peat banking and trading group, which set up with Aer Lingus a joint venture that is now the world's largest aircraft leasing and broking company, called Guinness Peat Aviation and based at Shannon.

* Purchase of a chain of 20 hotels in the United States (Dunfey Group), an enterprise which under Aer Lingus direction took over the Berkshire Place Hotel and the Statler in New York, the Shoreham Hotel in Washington, and the Ambassador East in Chicago.

* Open a plant this year in Dublin which will eventually employ 600 people to overhaul jet engines -- 85 percent of which will be from overseas airlines.

The government, as sole stockholder, appoints a part-time board which in turn appoints management. "There is no state interference at that level," Mr. Kennedy says.

Critics of Aer Lingus cite last year's closure of the route to Chicago as a failure to serve a major area with a substantial Irish connection. Mr. Kennedy says Aer Lingus stayed on longer than was commercially justifiable, but in the end -- as with Montreal --it could not keep an unprofitable branch for sentimental reasons. He also disputes claims that Aer Lingus did not enter the cut-price North Atlantic market early enough.

"We have been in the cut-price market on the North Atlantic for the past 10 years. We could not have retained our high market share otherwise. Consistently at least 70 percent of all traffic between the US and Ireland is carried by Aer Lingus. In fact, in 1976 we had the distinction of being turned down by the US government, on the grounds that the fares we were proposing were too low and would be unfair to the US charter companies. Our business across the Atlantic is predominantly tourist, and that means low-yield fares. We don't have the base of high-yield business traffic traveling the year round, such as New York to London or Frankfurt," he says.

"We have survived the low-fare business by having higher load factors than virtually any other carrier across the North Atlantic over a period of 15 years."

Last year the recession and the increased cost of fuel, coupled with the falling value of the Irish punt against the dollar, combined to produce a loss for Aer Lingus. But Mr. Kennedy sees the airline's future policy clearly: Shed about 500 employees, keep present routes, and rely on 747s for long hauls and 737s for short hauls.

"Essentially it will be more of the same --we haven't taken money from the state since 1950 and we don't intend doing so," he says.

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