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Tuesday 18 December 2018

I hate to say it...but O'Leary may be right on rumours of BA taking over Aer Lingus

So is BA to become BIA? Michael O'Leary told everyone who would listen that one likely consequence of his takeover of Aer Lingus being blocked, as it was by the Government and the EU, was that one of the bigger airlines would launch a takeover of their own.

Reports that Aer Lingus is to be bought by BA, whether they prove true or not, show exactly what he was talking about.

The premise of the suggested "BA takeover" we read about today is based on Christoph Mueller's recent interview with Aviation Week.

The Aer Lingus CEO said he would be interested in selling a stake to a larger airline, citing the example of Lufthansa's purchase of 45pc of Brussels Airlines two years ago. BA, rather than Air France/KLM or Lufthansa, is the likeliest buyer of the Irish Government's 25pc stake.

A BA takeover would be unlikely to be blocked in Brussels, unlike Ryanair's, because BA do not have direct flights to Ireland.

Hence the complaint from O'Leary that there seems to be one rule for Ryanair and another for the big-bang takeovers we have seen across Europe in recent years: Air France, KLM and Alitalia, Lufthansa, Swiss and Austrian, BA and Iberia.

The clustering of airlines was long predicted, but when it happened it took place at an alarming rate. The United States has four big airlines, Europe will be left with four at the end of the current process.

Point to point business is not enough to keep Aer Lingus alive, and having a cluster of American routes is of little comfort when a passenger booking from Sydney or California is directed to other lines.

The second-tier airlines, of which Aer Lingus is one, are being squeezed out on any routes that involve connections.

This has led Aer Lingus CEO Christoph Mueller to reverse the policy of his predecessor and consider joining an alliance, ironically negotiating with Willie Walsh of BA in doing so.

Of the three major alliances which would fit Aer Lingus, Oneworld, Star and Skyteam, the alliance of choice is likely to be Oneworld.

Having considered the options of going to Skyteam with Air France/KLM and or to Star with Lufthansa and SAS, Aer Lingus has realised that it is still filing one of its historical roles of feeding BA's Heathrow hub.

Over 250,000 passengers transit on to BA flights each year through Heathrow, much more than pass through to KLM at Amsterdam, Air France at Paris Charles De Gaulle or Lufthansa at Frankfurt.



alarming

A takeover would also strengthen BA's position at Heathrow as Aer Lingus is the fourth-largest operator at the busiest London airport.

On the downside it would attract the attention of monopolies regulators and could force BA to give up some of the Aer Lingus slots. Many of O'Leary's most alarming ideas have proven to be self-fulfilling prophecies.

Control of Aer Lingus is a complicated process, not least because of Ryanair's own holding of 29pc and the Government's 25pc. But the great irony would be if the former national airline and the government had spent time and tens of millions of euro saving Aer Lingus from Ryanair only to see it subsumed by BA.

O'Leary's 29pc stake is not enough to prevent that happening, but it could be enough of a foothold to keep predators at bay. O'Leary might yet prove the shamrock's unlikeliest of saviours.

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