Impact of State Aid on Aer Lingus Essay

Aer Lingus is an skyway in the republic of Ireland with a easy history that spans for a period exceeding 66 years. Its an respiratory tract that is thought to hold a very special place in the hearts of most Irish people. In recent times, the airline has experient difficulties. For example, there were agricultural problems both in England and in Ireland due to the emergence of BSE and Foot and Mouth disease. These are problems that caused the numbers of passengers traveling to un uniform countries to go down. In 2001, workers were in strike due to salary issues and this adversely affected the operations of the Aer Lingus.Global economic crisis emanating from the most powerful rescue in the world, the United States together with the September 11 terrorist attacks made many a(prenominal) holidaymakers and seasoned passengers to panic and they thus feared traveling. Moreover, lack of funds has been an many other major(ip) problem and this is nearlything that made Sabena and Swi ssair to close down because of insufficient funds. In fact, this is a problem that was so dangerous to many organizations that even Sabena had gone bankrupt. delinquent to such events, the major debate has been whether to provide body politic attending to Aer Lingus or not. The EU has been in the frontline to area that there is no need for the airline to be provided with state abet. On the other hand, some believe that since the regime is a shareholder in Aer Lingus it should then use some of the evaluate payers money to inject more(prenominal) cash into the lodge to save it (Mulcahy, 2002).Since this is a state owned airline, its dependence on aid to raise crownwork has creates several problems for it. The financial performance of the airline has been undermined for quite a vast period of time due to this dependence. However, in comparison to the private sector, state aid in most cases involves writing off the debts to financial institutions like banks. If it were the pr ivate sector on this issue, they would not have taken the musing that such debts may be written off. The idea to use state aid for Aer Lingus may be seen as a bad option. This is so because if it was a private investor at Aer Lingus and they encountered huge debts, such an investor would have considered liquidating the airline and starting all over again using the available assets. only if this has not been possible for Aer Lingus since its dependence is on the state to provide it with aid (Doganis, 2001).In 1994, the European Commission sought to approve the guidelines on rating proposals relating to state aid for airlines. Approving of the aforementioned proposals would see several conditions creation imposed. For example, by relying on state aid, Aer Lingus is going to face the condition that it mustnt expect additional aid in the coming future. Moreover, state aid according to the commission is not so-called to be used in any way to increase Aer Lingus capacity that may be to the damage of EU competitors. Moreover, if Aer Lingus obtains this aid, the offer it has in the EU market is not vatic to increase faster compared to overall traffic growth. Aer Lingus is also not supposed to use the state aid to increase its direct competition against other airlines (Doganis, 2006).The impacts of state aid on Aer Lingus did not come with negative make alone as aforementioned. There has been a success story to fall apart after state aid that was approved by the EU in mid 1990s. Even though reconstruction success at Aer Lingus took endless compared to Iberia and Air France, cost-cutting was achieved in years 2002 and 2004. State aid that Aer Lingus had received a decade ago had enabled it to survive most crises of that time. Up to early 2005, Aer Lingus calm had not been privatized despite the crisis. Early 90s posed problems for Aer Lingus that are still corresponding to the current problems. The company lost profits amounting to 7% and talks embarked to adjudicate a merger with Ryainar but this did not bear fruits.The management aggroup came up with a recovery plan but the profits cognise were still down. This is a problem that continued in 1992 but the interlocking of Bernie Cahill as the board chairman saw the government provide more investment in the airline. After the proposal was accepted by the EU, some assets like the computer company and hotels were sold. By 1995, the company realized some profits. These shows the impacts of the state aid on Aer Lingus have been both positive and negative. tho for Aer Lingus to survive in the market state aid is required since today, it estimated that the company is losing $2m in a single day. Moreover, the bookings have gone down by a staggering 80% (Barrington and Sweeny, 2001).