The Irish Entrepreneurial State

Aer Lingus Part 1

Paul Sweeney11/06/2018

In my last blog I looked at the Wild Atlantic Way as a good example of entrepreneurial thinking by public employees of the Irish state. Mariana Mazzucato has pointed out how many so-called private innovations were actually state-led and state-funded.

 

My point, like Mazzucato’s, is to address the anti-public sector bias which dominates economic discourse; to make the case for the reality of a mixed economy and to reverse the obsession with privatisation, outsourcing and other forms of financialisation of public services.

 

In this two part blog I will demonstrate that Aer Lingus was an example of a state-owned company that was innovative and commercially successful. It was founded by the state in 1936. It operated as an airline for many decades but in the 1970s, it diversified in order to counter the endemic cyclical nature of aviation.

 

It then established many subsidiary companies and also fostered a remarkable deal of managerial talent which has spread throughout the world, running other airlines and related aviation enterprises. I will also show that without Aer Lingus, Ryanair would not exist.

 

In my book “Selling Out: Privatisation in Ireland” published by TASC/New Island in 2004, I included a section on Aer Lingus called “A study of an Entrepreneurial company” (p20-23). I described how it diversified in the 1970s to counter the cyclical air-transport industry, developing into three sectors: aviation-related, financial and computer services. It planned the sell-off of these subsidiaries in the 1990s to keep itself afloat, after the Gulf War hit aviation.

 

Aer Lingus’ two most profitable investments were in the Dunfey/Omni Hotel Group in the US in 1976 and its substantial 45% investment in start-up Guinness Peat Aviation (GPA) with Tony Ryan and Guinness Peat Group in 1975.

 

It is important to stress that GPA would never had succeeded without the backing, in both financial and corporate support, from Aer Lingus, which was widely respected in aviation. It backed its former employee Tony Ryan’s GPA venture which was a great success (for many years) generating a huge amount of money for shareholders including Ryan and Aer Lingus. Its legacy remains with half of all commercial aircraft in the world leased from Ireland today.

 

Perhaps Aer Lingus’ most successful investment was in the Dunfey Hotel chain in the US. It made a modest investment of only £370,000 in 1976 and sold most of the chain for $132m in 1988 except the flagship Berkshire Place Hotel in New York. It later sold the Berkshire for $86m. The net gain on the total sale was in the order of almost $200m (€175m – the Irish pound was strong against the dollar in 1988) and it supported the airline for some years. The company was also augmented by substantial profits from the ancillary operations especially GPA from the late 1970s until the early 1990s. It was getting £7 to £8m a year when it had a 17 per cent stake.

 

Aer Lingus’ subsidiaries in its aviation related services division included Airmotive, Parc, PARC Care, a nursing home chain in the UK, PARC Ltd, a personnel company, TEAM Aer Lingus, Aviation Traders Engineering, Devtec Ltd, Aer Turas, SRS  Aviation, Pegasus, a charter airline in Turkey and Futura, a Spanish charter airline, Altek Automation, Timas, and Fernley and it had 53 per cent of its stake in Equant, a telecoms company, sold in 1999.

 

There were also associated companies which included Irish Helicopters (which it took over and later sold), Pratt and Whittney, 16% of Wimpey Villas and other holiday complexes in Tenerife, a 25% share in Jurys and the Airport Hotel and catering services and a share in food company Swiscco.

 

In its hotels, leisure and catering division, it owned London Tara, the large Dunfey/Omni hotel chain in the US, the Copthorne chain in the UK and continent, Foxhills golf complex in the UK, Montague Lloyd Ltd. Its travel companies were Blueskies, Sunbound, Cara Holidays, Enterprise Travel and Aer Lingus Holidays. Aer Lingus’ financial and computer services companies included CARA, an early computer company and 75 per cent of a robotics company, ATS Automation, in Canada. Thus Aer Lingus had built itself up to being a major player in aviation and tourism related sectors.

 

At one stage, the company employed a total of 14,000 staff world-wide, of whom half were employed in ancillary companies. For example, in 1989 the Dunfey/Omni hotels had 30 hotels with 13,000 bedrooms and Aer Lingus also owned Copthorne Hotels, a large European chain.

 

The above indicates some of the innovation by this Irish state company, now privatised. In the second part of the blog I will discuss why all airlines charged high air fares before liberalisation in Europe and I will show how Aer Lingus was one of the first to try to exploit liberalisation; how it made lots of money on its 45% stake in its prodigy GPA; and how GPA’s CEO, Ryan, used some of his money from that company to start Ryanair.

 

Posted in: Corporate governance

Tagged with: aerlingusprivatisationProductivity

Paul Sweeney     @paulsweeneyman

paul-sweeney

Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions.  He is a member of the Economic Committee of the ETUC and chair of TASC’s Economists’ Network. He was a President of the Statistical and Social Enquiry Society of Ireland, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.


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