If the price is right, it's time to sell Aer Lingus

Opposition to the proposed IAG takeover of Aer Lingus is based principally on local politics and on trade union rivalry. Government deputies fear the loss of their seats and have been stoking fears among Aer Lingus staff, especially in north Dublin. Deputies of all parties representing the Cork and Shannon airport catchments have been seeking assurances about continued service to those airports, including assurances not available.

The fears being fostered are largely groundless, in the sense that IAG is not planning to part with €1.36bn for the privilege of dismembering a profitable acquisition. The interest and responsibility of the Government as shareholder is also being overlooked. The Government owns just 25pc of the Aer Lingus shares and cannot control the company's decision-making under the current set-up. There is no other bidder, the Aer Lingus board has recommended the offer, and the principal interest of shareholders is to consider whether they agree that the offer is adequate.

The principal concerns of politicians appear to centre on the continuation of services from Irish airports to London Heathrow, the main hub of IAG's subsidiary British Airways, and the commitment of IAG to further development of the Aer Lingus transatlantic operation. IAG chief executive Willie Walsh offered assurances on both points at the Oireachtas transport committee and in subsequent discussions with Aer Lingus trade unions.

The Dublin-London air passenger market, with about four million passengers a year to the London area airports, is the largest city-pair market in Europe. There are 61 departures a day from Dublin to six airports in the London area - that is one every 15 minutes through the day - including 19 to Heathrow. Traffic to London is also the most important routing at all of the other Irish airports. The notion that the IAG group, or specifically its British Airways component, would choose to ignore this large market to Ireland does not make sense. Annual passenger numbers between Britain and Ireland are comparable to the numbers travelling between Britain and France, or Britain and Germany.

BA offers 14 departures a day from London to Dublin, eight from Heathrow and six from London City, and sees itself as a carrier with a long-term presence in high-volume European city-pair markets. Suggestions that BA would snaffle the Aer Lingus slots at Heathrow and divert them to other uses ignores the fact that it devotes 14 of its 350 daily slots to Irish routes (eight to Dublin and six to Belfast). If it was short of slots and had profitable unserved route opportunities, it could divert these slots tomorrow morning without paying €1.36bn for Aer Lingus. Specific suggestions that BA could switch to long-haul routes out of Heathrow also ignore the fact that BA is replacing its fleet of long-haul aircraft, many of which are coming to the end of their service lives and are headed for desert parking. BA is not short of slots, it is short of long-haul aircraft.

Nor is it clear that profitable long-haul opportunities abound. Last week Air France/KLM blamed overcapacity on long-haul out of Europe for recent poor financial performance. BA has been expanding its long-haul departures from Heathrow at a slow rate, an average of just one new daily service a year over the last four years. This is due to a shortage of commercial opportunity and a shortage of long-haul aircraft, rather than a shortage of slots.

When Mr Walsh promised to maintain current levels of service to Irish airports, he was not giving away too much - these routes are profitable according to Aer Lingus, and BA has alternative sources of slots in any event, most immediately the 14 it already devotes, voluntarily, to Dublin and Belfast.

IAG has committed to maintaining current service levels to Dublin, Cork and Shannon for a five-year period. Aer Lingus is not bound by any such commitment, so the security of these services is enhanced, not weakened, if the acquisition goes ahead. The Government has, if it secures the support of 5pc of the shares in addition to its 25.1pc, a veto over the sale of the Heathrow slots. But BA does not sell slots at Heathrow, it has been a serial acquirer of slots for many years. For BA to pledge that it will not dispose of the slots, or divert them away from serving the large Ireland to London market, is to promise nothing outside its commercial interest. The logic of the market makes the pledge from Mr Walsh entirely credible.

It is clear that IAG sees opportunity in building further on the emergence of Dublin as a connecting airport for transatlantic services. Michael O'Leary of Ryanair mentioned last week that his airline, which does not connect passengers to transatlantic at Dublin, might consider doing so in future.

The dominant short-haul carriers in Europe - Ryanair and easyJet - have been moving services into major airports as they drive out the legacy (former state-owned) airlines, and the future strategy could see both of them become short-haul feeders for the three main network operators in Europe, BA/Iberia, Lufthansa and Air France/KLM. Should Ryanair choose this path, it would create greatly enhanced connection possibilities for Aer Lingus at Dublin, including better frequencies on existing connections as well as service from additional cities.

At present, BA loses traffic across the Atlantic from provincial British cities to continental European hubs including Amsterdam and Paris. It would make sense, if Aer Lingus were part of the IAG group along with BA, to recapture this traffic through the more natural westward connection via Dublin. So Willie Walsh's commitment to develop Aer Lingus on the Atlantic is credible too. Dublin is in the wrong place to become a major airline hub connecting traffic from all points of the compass. But it is in the right place to become a more substantial niche hub between Europe and North America.

The IAG bid for Aer Lingus could net the State around €340m. But the State has far bigger fish to fry. AIB belongs to the Government, and Finance Minister Michael Noonan expects to raise multiple billions when AIB comes to be sold.

Suppose the elected luminaries imposing conditions on the State sale of a minority stake in Aer Lingus are let loose on the AIB sale. Guaranteed jobs for life for the staff, branches forever in every town that has one, new branches in the constituency of the noisiest deputy? There will be no buyers for AIB if the performance on Aer Lingus is repeated.

The Irish State decided to privatise Aer Lingus almost a decade ago, but to retain a 25pc shareholding. The commercial logic for the State of owning 25pc of something is not obvious. The State is not an investment trust - who would hire elected politicians, subject to endless pressures from vested interests, to manage their savings? If a commercial company is an asset of strategic national importance, best to own 100pc. If it is an ordinary commercial business, best not to have politicians involved at all. The risk is that they will pander to vested interests, including trade union and regional lobby groups. If the price is right, the Government should sell.