Friday, September 11, 2009

Mueller arrives to transform Aer Lingus into what it has been

aer lingus CHRISTOPH MUELLER took on the role of chief executive of Aer Lingus at the beginning of the month with a mandate to “transform Aer Lingus from a legacy Irish business to a modern international airline”.  The Irish Times reported on 10th September that Mueller is to be paid a basic salary of €475,000 – in line with the pay of his predecessor, Dermot Mannion and that he will not be paid a bonus.  His remuneration package is said to be in line with that offered by similarly-sized Irish listed companies”

Success for Mueller is the recovery of the 2006 IPO share price within five years.

‘Trust but Verify’

I always find it instructive to adopt the Ronald Reagan adage ‘trust but verify’ when considering statements by Aer Lingus.  Reagan used the adage as US-Soviet relations were thawing in the 1980’s.

All has to be considered in the context of the real beneficiaries of the 2006 IPO.  They are the former chief executive, Dermot Mannion; the non-executive directors whose fees trebled and the professional advisors who obtained €30 million in fee income in respect of the IPO and €24 million in respect of the Aer Lingus response to the two Ryanair bids.  There have been no dividends.  The share price has collapsed.  The pilots’ pension fund has been severely depleted through its Aer Lingus investment.

‘Basic Salary – No Bonus’

Mannion joined Aer Lingus in August 2006.  He departed in April 2009.  Cumulative losses at the airline  during his tenure were €72.4 million.  Cumulative losses since 2006 increased to €165.4 by the end of June 2009.

Mannion’s pay record has been:









Mueller’s salary is not  therefore in line with that of his predecessor. Greencore Plc, with a market capitalisation of €323 million,  is the nearest public company, in terms of market capitalisation, to Aer Lingus, which has a market capitalisation of €393 million – even though its cash resources apparently exceed this sum significantly.  The 2008 annual report reports the remuneration of its former chief executive, David J Dilger as being €1,095,000 in 2008 and €1,447,000 in 2007. 
Gesture of Confidence
Aer Lingus shares were priced at €0.52 on his Mueller’s first day at the helm of Aer Lingus.  They were worth €1.43 the day the person who hired him, Colm Barrington, became Chairman on 1 October 2008 so the stock market has not been enthusiastic about Barrington.
To demonstrate their confidence in the future of Aer Lingus, Barrington made his first-ever equity purchase when splurged €0.51 per share on 60,000 shares on 28 August. 
Mueller spent €29,275.70 on 50,000 Aer Lingus ordinary shares on 8 September.  That is equivalent to 6% of his annual salary, the same amount as his income tax levy.
His predecessor, Mannion, owned 18,988 shares, including an allocation of 9,803 shares under the Employee Share Ownership Plan.
Crystal Ball Gazing
Barrington issued a letter to Aer Lingus shareholders on 22 December 2008 advocating rejection of the 2nd Ryanair bid and he stated categorically then that “Aer Lingus is and will be profitable” and that it had cash resources in excess of €800 million.  When the results for 2008 were published Aer Lingus reported a loss of €107.8 million and €653 million.
o'leary Barrington was interviewed on the RTE Radio 1 This Week programme on Sunday 17 May and he rubbished claims by Michael O’Leary that Aer Lingus would run out of cash in 18 months (at the end of 2010).  He also said that Ryanair would be reporting losses but omitted to mention that if that was the case, the collapse in the Aer Lingus share price would account for a €220 million impairment charge as a consequence of the 71% fall in the value of Ryanair’s shareholding in Aer Lingus since Barrington became Chairman last October.  Five weeks after this interview the ‘legacy Irish business that is to be transformed into a modern international airline’ returned an operating loss of €93 million on revenues of €555 million – 12% lower than the previous June.
It would appear that the crystal ball can become a bit foggy from time to time.  But the one gesture that really undermined my respect for Barrington was the grovelling eulogy to the former senior independent director of Aer Lingus, Sean FitzPatrick, the disgraced former Chairman of Anglo Irish Bank - “in December 2008, Sean FitzPatrick resigned from the Board.  Sean served Aer Lingus extremely well and had a significant and positive influence on the company both before and after the IPO”.  Given that he was speaking of a eunuch that has utterly violated public trust and virtually bankrupted Ireland and that the Irish taxpayers own 25% of Aer Lingus, it might have been more appropriate to have said that “he has served on the Board but has departed”.  But he didn’t have the backbone to do that.
Incidentally, Ned Sullivan, Chairman of Greencore Plc was a director of Anglo Irish Bank from November 2001. He was also a member of the Risk and Compliance Committee at Anglo. Coincidentally, FitzPatrick was a director of Greencore from January 2003 until he had to also abruptly resign from that board in December 2008.  Sullivan, in his Chairman's Statement in the 2008 Greencore Annual Report opines “Sean had been a key contributor to the Board for six years during a period of significant change for the Group.  The Board would like to thank Sean sincerely for his valued input and wise counsel which has contributed greatly to the growth and development of the Group during that period”.  These sentiments provide a vivid insight into the umbilical relationship between the cute whore and the bucolic peasant.  There is no base threshold to which these self-aggrandising sycophants will not grovel.
FitzPatrick’s successor as senior independent director is a 72 year old ‘who has been everything’, including a pre-2008 director of the Bank of Ireland, the bank that was prepared to fund ‘Dubai-on-the-Dodder’, if that were to act as a bonus steroid for its leadership – is that the correct noun?
Non-Executive Directors Fees
The Secretary-General of the Department of Transport wrote to Barrington on the instructions of the Minister on 4 June concerning directors’ fees in advance of the AGM on 5 June and requested a review of these.
It is not clear if Barrington has sent an SMS text to these directors about this ‘legacy issue’ as promptly as he sent an SMS text to 63 contact  cabin crew last week to advice them they no longer have a job. 
I hope that the newly appointed Chief Executive of Aer Lingus succeeds.  Apart from the prevailing economic adversity, perhaps a bigger impediment to progress it contending with the embedded culture of a country club, the cute whore, the sycophant and the bucolic peasant.  Not even the gaudiest and most expensively produced  annual report can conceal the odious viral effect of that.

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