The sale of a stake in Aer Lingus to another airline is now being considered in earnest by the Government.
The decision follows a weekend of talks between ministers, airline executives and officials which concluded that the EU will allow the £150 million plus rescue of the national flag carrier only if it involves private sector funding.
The Commission will be asked to sanction short-term loans from the Government on the basis that they will be repaid via the sale of equity in a restructured company.
The State will retain a 51 per cent majority stake in Aer Lingus, while the unions can be expected to seek to increase their stake from 5 per cent to 15 per cent as the price for their support.
Aer Lingus was valued at less than £500 million before the September 11th attacks on New York and Washington and the Government will have difficulty in getting more than £150 million for the remaining 34 per cent stake in the current climate.
British Airways already has a strategic link-up with Aer Lingus and is a front-runner to invest in the airline. The chief executive of BA, Mr Rod Eddington, said yesterday that his airline was already in talks with other European carriers about consolidation, but Aer Lingus is understood not to be one of them.
Germany's Lufthansa and Air France would also be looking to take advantage of the funding crisis gripping smaller carriers.
Originally the Government had hoped to allow Aer Lingus trade out of its difficulties by guaranteeing loans from commercial banks. Although EU approval was the major stumbling block, other problems with this rescue plan emerged this weekend.
The chairman of Aer Lingus, Mr Tom Mulcahy, warned the Minister for Public Enterprise, Mrs O'Rourke, that the company would be crippled by interest payments if it had to borrow £150 million. There were also question marks over whether banks would lend money on the basis that the European Commission might rule that State guarantees were illegal.
The Government was forced to rethink the issue, particularly in the light of the inflexible position on state aid adopted by Ms Loyola de Palacio, the Transport Commissioner.
Mrs O'Rourke will brief her cabinet colleagues tomorrow.
She is expected to recommend that the airline now proceed with its restructuring on the basis that a sale of a minority stake will be the ultimate source of funds.
