Aer Lingus has recorded a fall in full-year pre-tax profits after the Irish airline spent €16.2 million (£11 million) fending off a hostile approach from its rival Ryanair.

Although sales rose 9.7 per cent to €997.9 million, pre-tax profit for the year to December 31, 2006, fell to €90.4 million from a previous €91.6 million after it sustained €133 million in exceptional costs, the majority of which relate to Aer Lingus's initial public offering last year in which it raised €400 million.

Operating profits before employee profit share declined to €76 million from a previous €81.4 million.

In October last year Aer Lingus received an unsolicited €1.48 billion takeover approach from Ryanair, after the rival bought up a 19.2 per cent stake in the company.

The Irish Government condemned Ryanair for attempting to create a monopoly in the Irish market.

The offer is the subject to an investigation by the Competition Commission.

As well as securing funds through the flotation to invest in expansion, including building up its short-haul and long-haul aircraft fleet, the group raised an additional €104 million to pay for inflationary increases on staff pensions.

During the year fuel costs rose by 44 per cent to $251 million (£130 million) and are forecast to increase to $335 million in 2007.

Aer Lingus has hedged its fuel costs at $64 a barrel, compared with $53 in 2006 and $35 a barrel in 2005.

The company said that it was performing well, in line with expectations, but that it was attempting to reduce its costs through its Programme for Continuous Improvement, which was launched in December.

Aer Lingus is in negotiations with unions and recently won the go-ahead on some cost-savings and efficiencies from the Irish Labour Court, but it must re-enter negotiations with employee representatives on other issues.

The group hopes to realise €20 million in employee savings by next year.

The carrier is also reviewing its maintenance costs, which totalled €73 million in the last financial year.

Aer Lingus is coming to the end of a ten-year contract with SR Technics, which provides maintenance for its aircraft, among other services.

The group used to run its own maintenance business, Team Aer Lingus, which was sold in 1998 to form SR Technics with the ten-year contract forming part of the terms of the sale.

The number of passengers who used Aer Lingus last year increased to 8.63 million, compared with 8.04 million in the previous year.

Aer Lingus had expected a €15 million shortfall after the terrorism alert at Heathrow last September, but the impact was only marginal.

The airline is hoping to increase its number of destinations in the US.

A draft aviation agreement on the "open-skies" deal between the EU and America will be discussed by European transport ministers next week, although BA and Virgin will give evidence today about their opposition to the changes before a Commons transport committee.

Aer Lingus flies to New York, Boston, Chicago and Los Angeles and seeks to add San Francisco, Florida and Washington to its coverage.

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