Mueller arrives to transform Aer Lingus into what it has been

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:

2006	€982,000
2007	€1,115,000
2008	€652,000
TOTAL	€2,749,000

 

 

 

 

 

 

 

 

 

 

 

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.

 

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.

 

 

‘You scratch my back and I’ll scratch yours’

The board of Anglo Irish Bank that created the debacle that led to its nationalisation, – chronic losses, impaired directors’ loans and the elimination of its equity, contains an interesting set of mutually beneficial relationships.  What is particularly noteworthy is the cosy, intimate nature of these relationships is that they are seemingly blind to the most appalling violation of public trust committed by Sean FitzPatrick, the former chairman of Anglo until he resigned, in disgrace, from all board positions on 18 December 2008.  But the unctuous tributes would make a casual observer believe that a saint was being celebrated, not a flamboyant spiv who has destroyed the reputation of a proud nation.

He disclosed that he he concealed tens of millions of € at Irish Nationwide Building Society to conceal the existence of personal borrowing from Anglo Irish Bank from the contents of the Bank’s annual report and he also inveigled Bowler’s Irish Life & Permanent Plc to deposit €7.5 billion at the end of September 2008 in Anglo to appear to boost the deposit base of the Bank.  The Tier 1 capital at Bowler’s bank was a mere €4 billion and, coo, shucks, she didn’t know nothing about this deposit beforehand, notwithstanding that her fellow director, Danuta Grey, was a contemporaneous director of Aer Lingus with, guess who – FitzPatrick. 

 

Greencore Plc

                               FtizPatrick became a director of Greencore Plc on 1 January 2003 and the Chairman of Greencore, Ned Sullivan, was a non-executive director of Anglo since 12 November 2001. 

The following summarises the fees’ aspect of this episode of mutual back-scratching:

 

	Sullivan’s fees at Anglo Irish Bank €	FitzPatrick’s fees at Greencore Plc €
2002	42,000
2003	70,000	30,000
2004	74,000	43,000
2005	75,000	45,000
2006	93,000	48,000
2007	108,000	48,000
2008	147,000	51,000
TOTAL	€609,000	€265,000

 

Sullivan was a member of the 3-person Risk an Compliance Committee at Anglo in 2008.  This Committee would have risk evaluated directors’ loans amounting to €175 million, of which €31 million are impaired since nationalisation and approved loans to property interests that account for losses of over €4 billion in the half-year to 31 March 2009 and the moral hazard associated with this.

Sullivan, in his chairman’s statement in the 2008 annual report of Greencore Plc eulogises FitzPatrick, as follows:

“In December 2008, Sean FitzPatrick resigned from the Board.  Sean has 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".”

Greencore Plc YE: September 26	2003 – €(000)’s	2008 €(000)’s
Sales	1,448,996	1,308,097
Profit after tax	57,655	46,152
Share price	€2.70 (31 Dec 2002)	€0.95 (18 Dec 2008)

 

Smurfit Kappa Plc

Gary McGann, chief executive of Smurfit Kappa had been a director of Anglo Irish Bank since January 2004 and FitzPatrick joined the board of Smurfit Kappa on 20 March 2007.  The following summarises the fee trawl:

 

	McGann’s fees at Anglo Irish Bank €	FitzPatrick’s fees at Smurfit Kappa €
2004	43,000
2005	65,000
2006	72,000
2007	92,000	250,000
2008	124,000	300,000
TOTAL	€396,000	€550,000

 

At 30 September 2008 Sullivan owned 440,084 ordinary shares in Anglo Irish Bank and McGann owned 5,900 ordinary shares.  McGann was a member of the Audit and Remuneration Committees.

The Chairman of Smurfit Kappa is Liam O’Mahony former boss of CRH Plc, and in his statement in the 2008 annual report about FitzPatrick was “I would like to thank all of the Directors for their contribution to the development and effectiveness of the Board and its various Committees.”  The Remuneration Report formally noted that FitzPatrick resigned from the Board in December 2008.  Is this not a perfectly dignified and appropriate way to deal with this matter!  No empty platitudes, no peasant cunning! 

 

Aer Lingus Plc

FitzPatrick was appointed to the board of Aer Lingus in 2004 when it was a state enterprise.  He received a fee of €13,000 in 2005 and €18,000 in 2006.  The airline became a public company in September 2006.  Non executive directors’ fees at Aer Lingus were tripled from €18,000 to €45,000 immediately following the IPO.

Colm Barrington, Chairman of Aer Lingus, in his statement in the 2008 annual report would almost fill a spinnaker with the effusiveness of his eulogy of FitzPatrick “In 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.”  Of course, given a share price of €0.59!  Fees paid to professional advisors in connection with and subsequent to the IPO at Aer Lingus were close to €60 million.  The cumulative loss recorded since the IPO is €72 million.  Enchanting!