AER LINGUS CEO DEBUNKS REPORTS ON AIRBUS DECISION

UNCLAS SECTION 01 OF 02 DUBLIN 000093

SIPDIS

SIPDIS

USDOC FOR ITA/MAC/MCLAUGHLIN
USDOC FOR ITA/ADVOCACY CENTER/NUGENT
DHS FOR OFFICE OF FIELD OPERATIONS, JAYSON AHERN, ASSISTANT
COMMISSIONER

E.O. 12958: N/A
TAGS: EAIR ECON PREL PGOV ETRD EI
SUBJECT: AER LINGUS CEO DEBUNKS REPORTS ON AIRBUS DECISION

REF: DUBLIN 89

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1. (SBU) Summary: In a January 25 meeting with Charge and
Emboffs, Aer Lingus CEO Dermot Mannion said that recent media
reports on the airline's alleged plans to purchase Airbus
aircraft were inaccurate. Mannion noted that, while a
decision had not been made, Aer Lingus regarded two Airbus
A330s as a good fit for urgent interim short-lift needs.
This consideration was not linked to the airline's
deliberation on longer-term, long-haul aircraft, and Boeing's
787 offer remained under serious consideration. Aer Lingus'
long-haul AIRCRAFT decision was tied to progress on the
airline's privatization, for which there was increasing
public and media support. Labor opposed the move, however,
due to concerns about the airline's pension deficit. Mannion
noted separately that Aer Lingus, U.S. carriers, and Post
shared interests in working with the Dublin Airport Authority
(DAA) to resolve passenger congestion and other problems with
U.S. Customs and Border Protection (CBP) pre-screening at
Dublin and Shannon Airports. End summary.

Aircraft Procurement and Aer Lingus' Needs
--------------


2. (SBU) Recent publicity regarding Aer Lingus, decisions
on AIRCRAFT procurement was inaccurate and premature, Aer
Lingus CEO Dermot Mannion told Charge, Senior Commercial
Officer, and Econoff in a January 25 meeting. (The January
22 Sunday Times had reported that the airline planned to sign
a USD 400 million deal for four short-range Airbus A330s,
presumably linked to a future purchase of as many as 14
long-haul Airbus A350s, rather than Boeing 787s.) Mannion
committed to inform Post about any AIRCRAFT decisions ahead
of the media. Aer Lingus, he said, had two stages of
aircraft requirements: long-term (with deliveries no sooner
than 2010-11),and interim lift needs. While stressing that
a decision had not been made, Mannion observed that the "best
option" at this point for the airline's urgent interim lift
needs was to purchase two A330s for delivery in 2007. The
two planes, he added, were valued at USD 200 million, with
one-third of the value in GE engines. He said that Boeing
had presented an interim lift proposal with its 777 model,
which remained under consideration, at least formally.
Mannion also indicated that difficulties, including with
unions, related to switching fleets (which is mostly Airbus
for Aer Lingus currently) would be an important part of the
decision. When pressed, he said a final decision in favor of
the interim A330s, if it is made, would not weaken the case
for a long-haul deal with Boeing.


3. (SBU) Mannion elaborated that, contrary to press reports,
there was "no linkage" between this urgent interim need and
the desire for the next generation of long-haul aircraft. He
said that no long-haul decision had been made, that
discussions with Boeing and Airbus were ongoing, and that the
deal would stand on its own merits. He noted that the
long-haul AIRCRAFT decision would not be made "until the way
forward was clear" for privatizing Aer Lingus (now 85 percent
government-owned). He observed that the government was
making progress on privatization behind the scenes, despite
negative pressure from several quarters. The Government,
moreover, might give approval to the timing and structure of
privatization (IPO vs. institutional placement) in as early
as three weeks. Mannion was non-committal on a specific time
frame for the decision on long-haul aircraft, pending a
decision on the company's privatization, noting that fleet
transition issues were difficult to pursue while
privatization issues existed. He underlined that Aer Lingus
management was slowly winning over the public and the media
on the merits of privatization.

Pension Issues Weaken Labor Support on Privatization
-------------- --------------


4. (SBU) Airline labor was withholding consent to Aer
Lingus, privatization, due partly to concerns about a
pension deficit of several hundred million Euro, observed
Mannion. Labor, he said, had downplayed the need for
privatization as a revenue-generating mechanism to cover the
pension deficit, arguing that the Government would cover the
shortfall for a state-owned company like Aer Lingus. Mannion
pointed out, however, that Aer Lingus could place a portion
of cash proceeds from privatization under control of
workers, trustees for pension purposes. He believed that
this "cash now" solution would be more attractive to airline

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retirees (mostly living in Prime Minister Bertie Ahern's
North Dublin constituency) than the vague hope of a
Government pensions bail-out. Mannion added that, in any
event, Ireland's major unions would not hold up pending
"Social Partnership" negotiations on a new national
wage-benchmarking agreement over the issue of Aer Lingus'
privatization.

Working with Post/the Dublin Airport Authority on CBP Needs
-------------- --------------


5. (SBU) Separately, Mannion offered to work with Post and
the Dublin Airport Authority (DAA) to address passenger
congestion and other problems with U.S. Customs and Border
Protection (CBP) pre-screening at Dublin and Shannon
Airports. (Per reftel, in a January 19 meeting in Dublin,
CBP officers requested expanded airport facilities for more
complete screening procedures, while the DAA asked for more
CBP personnel before making facility commitments.) Mannion
noted that Aer Lingus, interests tracked with those of U.S.
carriers in improving CBP operations at Dublin and Shannon to
develop those airports as more convenient trans-Atlantic
hubs. He added that CBP pre-screening would be an attractive
selling point in Aer Lingus, efforts to expand service
to/from the Persian Gulf, as a proportion of the passengers
would proceed from Ireland to the United States. Mannion
believed that the DAA's senior leadership understood CBP's
value in boosting Aer Lingus' passenger volume, and he hoped
that this point would not be "lost in translation" with DAA
personnel involved in Dublin Airport's expansion plans.
KENNY