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AIB saves struggling Aer Arann with EUR1m credit lifeline

30-Aug-2010 12:49 PM

Allied Irish Banks, a major creditor of Aer Arann, has reportedly extended the Irish regional EUR1 million in fresh funding to allow for the appointment of an interim examiner (Sunday Independent, 29-Aug-2010). AIB is owed EUR3.9 million by Aer Arann, and without the EUR1 million infusion the examinership would not have proceeded, as there would have been insufficient working capital to meet the airline's daily expenses. The airline has the protection of the court from its creditors for a 70-day period. Other major creditors include the Dublin Airport Authority, which is owed EUR2 million from the use of facilities at Dublin, Cork and Shannon airports. Chairman Pádraig Ó Céidigh is facing the possibility of suffering significant personal losses as he has given personal guarantees amounting to EUR1.2 million to the AIB as part of the terms of Aer Arann's overall funding facility from the bank. Mr Ó Céidigh has affirmed that there is “a strong possibility” that the airline would survive, which has been confirmed by an independent auditor and the High Court’s decision to appoint an examiner and grant protection from creditors (RTE Business/Irish Independent, 27-Aug-2010). The Chairman stated he has received interests from three investors, but declined to identify the parties and comment on the amount of capital the airline needs.

Aer Lingus, meanwhile, has reportedly ruled out suggestions it is considering moves to acquire its franchise partner (Irish Independent, 27-Aug-2010) Speculation has mounted that Aer Lingus was coming under political pressure to save Aer Arann, but any such move is likely to meet resistance from unions at Aer Lingus and complicate the airline’s current cost-cutting programme aimed at lowering costs by EUR97 million p/a.

Meanwhile, the Irish Government has affirmed its support for the restructure of Aer Arann, stating that direct air access is “absolutely crucial” to Ireland’s south-east region (Irish Times, 27-Aug-2010). The Government has reportedly outlined plans to continue to provide EUR11 million p/a to the airline in return for it operating PSO routes as part of a policy to support regional airports (Irish Examiner, 28-Aug-2010). Over EUR33 million has been provided to Aer Arann over the past three years, a period over which it lost EUR18 million. The Government’s policy runs until Jul-2011 and airports included are Galway, Knock, Sligo and Donegal. Mr Ó Céidigh has stated that the PSO routes operated by the airline have not affected the airline’s current position (Irish Independent, 27-Aug-2010).

Department of Transport: “There should be no panic response from regional airports in particular as to the future viability of Aer Arann. While undoubtedly the company faces significant challenges, with the right business plan and new financial backing Aer Arann is confident that it can secure a viable operating future and continue to provide valuable employment to its staff," Simon Coveney, spokesman. Source: Irish Times, 28-Aug-2010.