herald

Saturday 16 December 2017

Dan White: Take money and run on Aer Lingus, or be left with little

Plane at Dublin Airport
Plane at Dublin Airport
The Aer Lingus board said it was prepared to accept a sweetened offer worth 2.55 euro a share

AT the Oireachtas Transport Committee yesterday Willie Walsh (inset) sought to downplay fears that an IAG takeover of Aer Lingus would see the airline's slots at Heathrow Airport assigned to non-Irish routes by its new owner.

IAG is prepared to give "cast-iron legal guarantees" that the slots would continue to be owned and operated by Aer Lingus if its takeover offer succeeds. This is much more than IAG has been prepared to promise up to now.

However, by far the most important development in the Aer Lingus story yesterday was not Mr Walsh's move on the Heathrow slots.

Instead, it was the ruling by the UK Court of Appeal to uphold a previous decision by that country's Competition Commission ordering Ryanair to reduce its stake in Aer Lingus, which currently stands at 29.9pc, to no more than 5pc.

This legal defeat effectively marks the end of the road for Ryanair's efforts to take over Aer Lingus. It has twice bid for its Irish rival since Aer Lingus was privatised in 2006.

Ryanair's 29.9pc stake in Aer Lingus is now for sale to the highest bidder.

politicians

That bidder is almost certainly going to be IAG, the parent company of BA and Spanish airline Iberia. The €2.55 a share that IAG is offering would allow Ryanair to exit Aer Lingus with a modest profit.

Ever since first revealing its interest in purchasing Aer Lingus last December IAG and Mr Walsh, who is a former Aer Lingus boss, have adopted a softly-softly approach. Politicians have been treated with kid gloves as IAG tried to persuade the Government to sell its 25pc stake in Aer Lingus.

Don't be fooled. That could change very quickly following yesterday's UK decision. As he previously demonstrated when he ruthlessly pruned Aer Lingus in the aftermath of 9/11, Mr Walsh is as hard as nails.

What no-one seems to realise in the debate surrounding the proposed takeover is that it is Michael O'Leary and not Transport Minister Paschal Donohoe who will decide the future ownership of Aer Lingus.

If he decides to sell the Ryanair stake to IAG (still the most likely outcome despite Ryanair's announcement that it will appeal yesterday's decision to the UK Supreme Court) then IAG and not the Irish government would be the largest Aer Lingus shareholder.

So, if his nicey, nicey approach fails to deliver the desired result, what are the odds on Mr Walsh adopting a robust approach? If he can persuade Mr O'Leary to sell him the Ryanair stake then there is nothing to stop IAG from launching a hostile takeover bid.

worst

If, or more likely when, this happens, the Irish government would end up with the worst of all possible worlds.

While it could retain its shareholding it would end up with a minority stake in an IAG subsidiary whose shares weren't traded on the Stock Exchange. If IAG were to play hardball, such a shareholding could be rendered worthless - instead of the €340m which the state would receive if it accepted the current IAG offer.

In a rapidly-consolidating European aviation market the best that Aer Lingus can hope for is to find a good home. IAG is probably as good as it's going to get.

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