Credit: Daniel Blok/Flickr

Only Ryanair stands between IAG and Aer Lingus now

The Irish government accepts the British Airways owner's £1bn offer for Aer Lingus, but the deal still hinges on Ryanair saying yes.

by Adam Gale
Last Updated: 10 Jul 2015

Willie Walsh is a persistent man. Three times the IAG boss put forward an offer for Aer Lingus, the Irish carrier where he began his career as a pilot before taking its corporate helm. Three times it was rejected, first by Aer Lingus itself, later by the Irish government.

After months of negotiation, Walsh has finally convinced the Irish state to accept IAG’s €1.4bn (£965m) takeover bid and sell its 25.1% share in the airline. All it cost were a few assurances from the multinational carrier, which owns British Airways, Iberia and low cost Spanish carrier Vueling, over jobs and Aer Lingus’ continued presence at Heathrow airport.

Speaking on Irish broadcaster RTE, the country’s Minister for Transport Paschal Donohue said Ireland would hold on to a single ‘B-share’ that would give it the ability to veto any future attempt to dispose of Aer Lingus’ 23 lucrative runway slots at Heathrow.

‘We have secured certain guarantees that the State does not have at the moment,’ Donohue said. ‘We’ll now move to a situation where we will be... the only stakeholder that will have a role in relation to the disposal of slots.’

The agreement also guarantees daily services between Heathrow and Dublin, Cork and Shannon for at least seven years, under condition that in the final two years airport charges do not rise above an agreed levels. IAG even threw in a commitment to create 630 new jobs in the country by 2020.

From Walsh’s point of view, this makes perfect sense. He’s a big believer in airline consolidation, but he’s not after Aer Lingus for ‘synergies’ or asset stripping. Unlike struggling Iberia a few years ago, it doesn’t need it. Rather, he wants the airline because it will increase the group’s share of the lucrative transatlantic routes, using Dublin as a ‘natural gateway hub’.

By expanding flights from Dublin, which has excess runway capacity, IAG believes it could add another 2.4 million passengers to the 88.1 million the two companies currently fly every year.

So everyone wins then? No quite. The one party Walsh still has to convince is Ryanair, which controls 29.8% of Aer Lingus and needs to agree for the deal to go ahead. He may not find that quite so easy.

Ryanair’s Michael O’Leary is also somewhat persistent. He’ been trying to get his hands on Aer Lingus for even longer than Walsh, but has been thwarted by UK and EU competition authorities. In February, Ryanair lost an appeal against a Competition and Markets Authority (CMA) ruling that it must reduce its stake in Aer Lingus to just 5%.

Ryanair is still trying to convince the UK Supreme Court to hear another appeal, arguing that its ‘human rights’ have been violated. O’Leary said Ryanair ‘will consider any offer from IAG on its merits, if or when it is received’, but his actions don’t exactly scream a willingness to give up.

The €405m that Ryanair would receive for its stake if it did sell might seem to sweeten the deal, but then it isn’t exactly strapped for cash. Yesterday, the firm reported a 66% increase in full year net profits to €867m.

Walsh appears to be betting that O’Leary won’t have much of a say in the matter, with a successful appeal to the CMA ruling unlikely at best. Without it, Ryanair would have to sell its shares to someone, whether it wanted to or not. Either that, or Walsh thinks O’Leary will simply accept defeat and a very reasonable €2.55 a share. Anything’s possible.

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