Aer Lingus Group Plc Business Information, Profile, and History

Company Perspectives:

The Aer Lingus mission is to be the first choice airline serving business and leisure passengers and customers of its cargo services, in a safe and reliable manner on all of its chosen routes.

It will also strive to attain a position in which its subsidiaries are profitable and viable within themselves, are strategic to the core airline business and the ownership of which enhances the achievability of the airline's objectives.

Aer Lingus will operate a commercial and profitable business and will reinvest in the development of its people, its fleet and its products to achieve these ends.

History of Aer Lingus Group Plc

A relatively late starter among European flag carriers, Aer Lingus Group plc has grown quickly in its first few decades to a stature belying the size of its tiny home base. Although Ireland has less than four million inhabitants, about six million passengers a year fly Aer Lingus, which also handles a significant amount of cargo.

Origins

On April 11, 1928, Major James Fitzmaurice, Officer Commanding the Air Corps, had made the first aerial east-west crossing of the Atlantic with Hermann Koehl and Günther Freiherr von Hünefeld, leaving Baldonnel, county Dublin in a Junkers W33. In spite of the celebrity he achieved, Fitzmaurice was unable to persuade the Irish government to start a national airline, probably because the venture would have likely lost money at first.

Nevertheless, in the next few years a number of air companies sprang up, at least on paper, eager to supply transatlantic air service to the Emerald Isle. Richard F. O'Connor, County Cork Surveyor, originally proposed the name 'Aer Lingus Éireann.' His prospectus noted that Bulgaria was the only other European country that had not yet started its own airline. Interestingly, Ireland was also the only country which allowed civil aircraft to fly into all its military airfields.

When the illustrious British aviator Sir Alan Cobham pulled out of a prospective cross-channel venture with the Irish government, Captain Gordon Olley was left as the government's partner. The new company, then referred to as Irish Sea Airways, was based at 39 Upper O'Connell Street in Dublin. It had just a handful of staff. The airfield, in somewhat remote Baldonnel, doubled as a sheep pasture.

The airline was formally incorporated on May 22, 1936, as Aer Lingus Teoranta, a corruption of the Gaelic for 'Air Fleet (Loingeas) Limited.' At the same time, Aer Rianta was established as a holding company for diverse national aviation interests including Aer Lingus itself.

The company's first plane, a twin-engined de Havilland DH-84 Dragon, was dubbed Iolar, Irish for 'eagle.' Transferred from Olley Air Services, it had cost £2,900 new. Its first Aer Lingus flight, carrying five passengers, was from Baldonnel near Dublin to Bristol on May 27. However, the maiden voyage of the luxury liner Queen Mary stole any hope of press coverage that day.

In fact, the board would come to avoid publicity of the airline's regularly unreliable service at the hands of uncertified crew. Nevertheless, the company's route system grew within the first year, adding the Isle of Man and Liverpool. Sightseeing flights around Dublin were even made part of the program.

Aer Lingus purchased a second aircraft in September, a DH-86A. A DH-89 followed and two years later the company ordered a couple of Lockheed 14 aircraft, which were soon sold and replaced by the ubiquitous Douglas DC-3. In spite of the large number of types flown, at any one time the company fielded but a handful of aircraft. Aer Lingus flew 4,987 passengers in 1938, a more than fourfold increase from 1936's 1,130.

North American aviator Robert Logan was hired as manager in 1938. He effected improvements in all areas of operations. A new airport at Collinstown, near Dublin, opened in January 1940. J.F. Demsey became manager of Aer Lingus and Aer Rianta in January 1943.

Although Ireland was neutral during World War II, the conflict scuttled plans for a continental route, either to Paris or Amsterdam. Aerial warfare complicated service to England, closing access to cities under bombardment and necessitating complex approach procedures and camouflage. Even these flights were suspended with Allied preparations for the Normandy invasion.

Postwar Growth

Demand took off after the war. Several other aircraft types went through Aer Lingus's hands in quick succession as the company struggled to find enough suitable planes. It acquired five more DC-3s (converted from C-47s) in 1945. The Irish Air Corps briefly transferred to the airline a Supermarine Walrus amphibian for training. The company bought seven Vickers Vikings in 1947 due to a spare parts crisis for one of its crash-damaged DC-3s. Five new Lockheed Constellations were bought the same year (at US$892,000 apiece) in anticipation of reaching a market of 40 million ethnic Irish in the United States with transatlantic service. Although yet another Aer Rianta subsidiary, Aerlínte Éireann, was created for these operations, an unfavorable political climate grounded these efforts. Both the Vikings and the Constellations were sold off in 1948.

In 1946, Aer Lingus was reorganized as a joint venture between the state-owned holding company Aer Rianta (60 percent) and two British carriers, BEA (30 percent) and BOAC (ten percent). The purpose was to develop international air traffic to, from, and through Ireland.

After World War II, the airline began naming its planes after Irish saints such as St. Malachy and St. Ronon. They were even blessed in an annual ceremony. Still, one of the DC-3s crashed in Wales in 1952, killing all 20 persons aboard. The new pride of the fleet, sleek turboprop-driven Vickers Viscounts, first arrived in 1954. (Unfortunately, three of the Viscounts were destroyed in crashes in 1967 and 1968.) Another new aircraft was the Fokker F27, five of which were ordered.

The seasonal nature of Anglo-Irish air traffic helped create IR£50,000 of losses for 1954. However, expansion to more points on the continent helped bring a turnaround by 1956 (the company attaining an operating surplus of IR£159,000). That same year, the British shareholding in Aer Lingus was reduced to just ten percent, and BEA began to fly competing routes.

Aer Lingus finally inaugurated transatlantic service to New York in April 1958 on a single leased Super Constellation aircraft, billed as 'the great emerald fleet.' This and two other 'Connies' were soon replaced by the company's first jets--three Boeing 720s brought on-line beginning in December 1960. Aer Lingus showed a record profit of IR£277,000 in 1961, whereas its sister company Aerlínte lost IR£94,000 over the North Atlantic. Aer Lingus added several new routes to Europe, particularly France.

The Boeing 720s lacked sufficient range with the full payloads they were carrying, and they began to be replaced with Boeing 707s in 1964. Aer Lingus also used Carvairs--converted from DC-4s--for car ferries to Great Britain, and acquired a couple of Airspeed Consuls for training and charters. However, a request to buy French Caravelle jets was denied by the finance ministry on the grounds the buy would result in excess capacity.

Aer Lingus bought a 25 percent stake in Irish Intercontinental Hotels in 1960 in cooperation with Aer Rianta, International Hotels Corporation (owned by Pan Am), the Gresham Hotel of Dublin, and others. It later briefly invested in Ryan's Tourist Holdings, and opened its own hotel, the London Tara, in 1973. In the 1970s it invested in leisure resorts and bought control of the Dunfey family's New England hotel empire.

Aer Lingus and Aerlínte were cut off from the national treasury in 1963, and required to borrow whatever funds they needed at commercial rates. A restructuring in 1965 relegated Aer Rianta to airport management after BEA withdrew entirely from Aer Lingus. Aerlínte continued to operate. Airline staffed numbered about 5,400 in the mid-1960s, most of them based in Ireland.

Charters became an important source of business. Aer Lingus carried British football teams to the continent, bingo players from Liverpool to New York, and on one occasion installed a dance floor in a Boeing 747 to allow the Arthur Murray School of Dancing to foxtrot to Ireland. The carrier also leased out aircraft in the off season. In the case of tiny Air Siam, this was accompanied by a significant commitment of Aer Lingus support personnel as well.

Aer Lingus began flying new British Aerospace BAC 1-11 jets in 1965. It also ordered some larger Boeing 737s, making it an early operator of one of the most successful short-haul jets ever. The flight simulator installed for this type allowed Aer Lingus to begin training pilots for third parties. Booming transatlantic service seemed to justify ordering two of the enormous Boeing 747s for IR£20 million in 1967. (Aer Lingus began flying them in 1971.) Aer Lingus also bought out Shannon Repair Services, a privately owned competitor to its maintenance unit, in 1967. Michael Dargan became general manager in that year.

Aer Lingus contracted with IBM Ireland to install its computer reservation system, Advanced System of Telecommunications and Reservations for Aer Lingus (ASTRAL), making it an early player in this most important area of technology. The company was soon selling access to the system to other airlines. In 1971 these operations were spun off as Cara Computing.

The Trying 1970s

During the 1970s, violence in Northern Ireland kept many Americans at home, decimating transatlantic traffic, and increasing insurance rates. Talks of developing a joint venture, Northern Ireland Air Services, fell through due to political disturbances. Aer Lingus and Aerlínte posted their first combined loss in 12 years--IR£2,390,000--in 1971. Around this time, plans were being made to merge the two companies; however, they were to wait for more than a dozen years.

The 1970s opened with tense negotiations between the United States and Ireland over landing rights. Soon after receiving its first Boeing 747 jumbo, dubbed St. Colmcille, Aer Lingus learned that the United States would be suspending its landing rights in New York in August 1972. The closure of the New York route was deferred and the issue was finally resolved in June 1973; Pan Am and TWA received the right to fly directly to Dublin rather than Shannon. However, TWA operated the route only briefly and Pan Am not at all; the oil crisis of 1973 removed any hope of profits there. During the next year, fuel costs would increase five times and inflation would rise to 20 percent.

Charters remained the fastest-growing area of traffic to the continent even after Ireland joined the Common Market in 1973. Pursuing the budget traveler, Aer Lingus invested in a couple of wholesale travel agencies specializing in southern Europe. Aer Lingus also acquired a ten percent share in the Guinness Peat Group at the end of 1973, ensuring access to favorable terms and clearing the way for the Guinness Peat Aviation aircraft brokerage venture in 1975. Aviation Traders (Engineering), based at London's Stansted Airport, was acquired in 1976. Other engineering, catering, and personnel management enterprises were bought or started throughout the decade.

David Kennedy was designated Michael Dargan's replacement as CEO when Dargan retired in March 1974. The company streamlined its shamrock logo and introduced new uniforms for flight attendants, part of a campaign to establish a 'Friendliaer Lingus.' The Tara Circle frequent fliers program was also launched.

British authorities removed the carrier's fifth freedom rights in Manchester (the ability to pick up passengers in a foreign country to transport beyond that country). As a result, Aer Lingus phased out destinations in Germany, Belgium, the Netherlands, and Scandinavia. The carrier also closed money-losing routes to Montreal and Chicago in 1979 and 1980. Fuel prices had made the routes uneconomical for the Boeing 707s, which were then phased out.

In addition to political violence at home and in the Middle East, Aer Lingus endured significant labor unrest, culminating in a bitter strike in March and April 1978. However, a papal visit to Ireland the next year gave Aer Lingus staff a chance to demonstrate the fullest extent of their hospitality. Another oil crisis later in the year, though, precipitated staff reductions and other austerity measures.

Aer Lingus helped many developing countries (Lesotho, Netherlands Antilles, Kenya, Zambia) establish their own airlines in the 1970s. Ireland's own status as a former colony made it appear a sympathetic partner. By decade's end, 40 airlines worldwide were contracting with Aer Lingus for some ancillary service or another.

Post-Deregulation Complications

Deregulation of U.S. air carriers and open skies agreements around the world complicated the competitive scenario for Aer Lingus, which posted a IR£11.2 million loss in 1981. Within a few years the company closed high-profile offices in Paris and New York City and other sales offices in North America and the United Kingdom.

Still, the company continued to grow internally and by acquisition. After nearly a decade of discussions, Aer Lingus acquired a 54 percent interest in tiny, all-cargo Aer Turas in 1980. Four years later, one of its DC-8s became the first Irish plane to circle the globe (it made a dozen stops en route). Irish Helicopters was also acquired. Airmotive Ireland, an engine overhaul specialist, opened in 1981. The unit took some years to develop profitability. At the same time, the Aviation Traders subsidiary suffered a downturn in work due to a worldwide phasing out of Boeing 707s.

The U.S. government also pressured the company to turn away lucrative business from United Arab Airlines. Aer Lingus had a direct brush with terrorism when flight EI 164 from Dublin to London was hijacked on May 2, 1981. Fortunately, no one was injured and the hijacker, who had wanted to go to Iran, was arrested after a few hours of negotiations on the tarmac at Le Tourquet, France.

A new commuter service subsidiary was launched in May 1983 to keep routes between Dublin and provincial cities open in the face of dwindling economic justification. Interestingly, the commuter line used Shorts 330 and 360 aircraft built in Belfast--the first time Aer Lingus flew Irish-made planes.

There were more reasons for the Irish to take pride in their aviation industry. In 1984, the CEO of Aer Lingus, David Kennedy, held the presidency of the International Air Transport Association (IATA), while Ireland also supplied presidents to the European Civil Aviation Conference (ECAC) and the European Community. On the occasion of its Golden Jubilee in 1986, Aer Lingus restored a de Havilland DH-84 aircraft for exhibitions at air shows.

A four-day pilots' strike in July 1985, though, demonstrated some internal disharmony. Aer Lingus faced renewed transatlantic competition from Pan Am and Delta. Fortunately, Aeroflot was feeding the company transatlantic passengers from Moscow. Cargo operations also helped this route. Aer Lingus carried 20,000 tons of cargo on it, a third of its total. After falling sharply the year before, traffic on the North Atlantic grew more than 20 percent in 1985, reaching 292,000 passengers. The airline carried 1.9 million on European routes. Aer Lingus attained a IR£14.3 million profit, but had to brace itself for the replacement of its aging fleet.

A small independent competitor, Avair, went out of business in 1985, unable to compete after Aer Lingus denied it access to the Astral computer reservation system. The launch of independent Irish carrier Ryanair in 1987 brought Aer Lingus intense low-fare competition in the European market.

In 1989, Aer Lingus canceled a ticket-exchange deal with British Midland after it announced a competing London-Dublin service. In 1992, the European Community Commission fined Aer Lingus EUR 750,000 (US$933,000) for market abuse and ordered Aer Lingus to resume the cooperation.

Regrouping in the 1990s

In 1990, maintenance operations were made a separate company known as TEAM Aer Lingus ('The Experts in Aircraft Maintenance'). It boasted 2,100 employees and a new US$60 million hangar. However, the unit would lose money for the next few years due to the global recession.

Unemployment in Ireland, at 20 percent, was the highest in Europe in the early 1990s. Preparing for privatization in this type of political climate was a long process. Further, scandals rocked other flotations at Telecom Eireann and Irish Sugar. Still, after it lost IR£1.12 billion in 1994, Aer Lingus underwent a profound restructuring. It was able to cut costs 20 percent in the next two years as traffic rose by 30 percent. The company added Newark to its three other U.S. destinations--New York, Boston, and Chicago. Aer Lingus retired its Boeing 747s in 1995. Leased Airbus A330s took over the transatlantic routes while Air Lingus Commuter added three BAe 146 jets to its fleet of Fokker 50s.

The company unveiled a new corporate identity on February 14, 1996. By this time, Ireland's economy had become one of the hottest in Europe and Aer Lingus was one of the 25 most profitable airlines in the world (operating profits of IR£41 million or US$67 million). Still, the carrier searched for a strong U.S. partner to help it remain viable in the era of global alliances.

Sales continued to rise, and Aer Lingus boasted pre-tax profits of IR£55 million in 1998. The company sold TEAM Aer Lingus to Denmark-based FLS Aerospace, and reportedly spent US$85 million to buy the staff out of their contracts.

Service to Los Angeles was added in May 1999, giving Aer Lingus a much-desired West Coast stop. The company pitched Dublin as a more convenient portal to the United States for U.K. travelers than crowded Heathrow Airport in London. Later in the year, Aer Lingus joined the OneWorld alliance made up of American Airlines, British Airways, Canadian Airlines, Qantas, and others. The Irish government remained ostensibly committed to its eventual privatization.

Principal Subsidiaries: Aer Lingus Limited; Aer Lingus Shannon Limited; Aer Lingus Commuter Limited; Aer Lingus Beachey Limited; Compania Hispania Irlandesa de Aviacion SA (Futura) (Spain; 85%); Timas Limited (75%).

Principal Divisions: Transatlantic; London; Continental Europe; Aer Lingus Commuter; Cargo; London Heathrow--Ground Handling; Futura.

Principal Competitors: Ryanair Holdings plc; British Airways plc; Delta Air Lines Inc.

Chronology

• Key Dates:

• 1936: Aer Lingus is incorporated in Dublin.
• 1958: Transatlantic service is launched.
• 1972: U.S.-Ireland landing rights dispute nearly costs Aer Lingus access to New York.
• 1983: Aer Lingus Commuter is launched.
• 1999: Aer Lingus joins the OneWorld alliance.