Rumours that the boss of BA parent group IAG, Willie Walsh, had made an approach to Aer Lingus have been confirmed, as Aer Lingus’s board comes out fighting, batting the bid away saying that it ‘fundamentally undervalued’ the business.
Although details have not been formally disclosed, the bid is said to have been for around 2.20 euros a share, valuing Dublin-based Aer Lingus – which carries around 10 million passengers a year – at around 1.16bn euros. Shares in Aer Lingus rose briefly by 20% on the news.
Walsh – who has already built IAG into one of Europe’s largest operators via a series of hard-bargaining takeover deals, including Spanish carriers Iberia and Vueling – is presumably keen to add Aer Lingus to his stable, not least because of its 23 pairs of landing and take off slots at Heathrow Airport (each pair of which is reckoned to be worth as much as 15m euros) but also because its transatlantic trade would provide valuable feeder business for BA’s own long-haul connections to Asia and the middle east.
And although the 53-year-old Irishman could hardly be described as a sentimental man, it is worth remembering that he has a lot of history with Aer Lingus. It’s the airline where Walsh forged his career, beginning as a plane-mad 17-year-old student pilot who had to catch the bus to work because he didn’t have a driving licence.
He went onto to become a senior rep for the pilot’s union before crossing the floor to management and eventually taking over as chief exec in 2001, a dark period in Aer Lingus’s history. His first task on taking over was to make a speech to the massed staff effectively telling them that a third of them were about to lose their jobs. It earned him the hated sobriquet ‘slasher’ but had he not grasped the nettle it’s quite possible that there would be no Aer Lingus left today to make a bid for.
For IAG (a group established expressly to accommodate the acquisition of more airlines) Aer Lingus also makes a good strategic fit – its Dublin hub on the very edge of Europe makes it less attractive to many potential purchasers, but fits well with BA’s main location at Heathrow.
But it makes a tricky takeover prospect for a variety of reasons, and Walsh has timed his attempt carefully. Firstly there is the thorny question of Ryanair, which after a string of unsuccessful bids of its own still holds a 30% stake in Aer Lingus. Although it has been ordered to dispose of this by competition regulators, it is appealing against the decision. It is reckoned unlikely to win its appeal, but even so Ryanair boss Michael O’Leary will be very keen to avoid doing anything to help Walsh succeed where O’Leary has himself failed thrice before.
The Aer Lingus board have also proved feisty defenders of their independence over the years. Although current chief exec Christoph Mueller is due to depart in May, to take on the frankly enormous task of turning round Malaysia Airlines, he will leave Aer Lingus in pretty good health. It is forecasting improved operating profits for the year and has 1bn euros cash in the bank. It has been quietly doing rather well on flights to America, thanks in no small part to a canny arrangement which allows passengers to clear US customs on the ground at Dublin before they depart, thus avoiding the increasingly onerous queues at the other end.
Finally – and perhaps most unpredictably of all – there is the Irish government, which still owns 25%. It has said that it would be willing to sell at the right price, but given the parlous state of the Irish public finances it would say that, wouldn’t it? It may well privately view Aer Lingus as a national asset, so that in effect the ‘right price’ will prove always to be a little more than any buyer is prepared to pay.
Still, Walsh loves a scrap and once he has set his mind to something he is not one to give up. Like Arnie, he’ll be back.