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Sunday 31 August 2014

Aer Lingus gears up for special dividend due to 'strong' position

Sarah McCabe

Published 08/07/2013 | 05:00

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Christoph Mueller rejected Ryanair’s criticism of Aer Lingus’s dividend level

AER LINGUS will consider paying out a special dividend within months, according to chief executive Christoph Mueller.

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In an interview with the Irish Independent, Mr Mueller said share buy-backs were not on the agenda for the airline but that a special dividend, in addition to the dividend policy it has already set out for this year, is a possibility.

"We have a very strong balance sheet. In the absence of any major worthwhile investment coming up, the board will consider a special dividend," he said at the launch of the airline's new routes to San Francisco and Toronto.

The company's current dividend policy, announced in May 2012, is to pay a dividend in years in which it makes a profit, provided it is "appropriate and prudent".

The Department of Transport also said earlier this year that the State, which owns a quarter of Aer Lingus, will be a more active shareholder now that it has decided not to sell its stake in the short term, and is seeking the payment of an annual dividend.

Aer Lingus has already paid out one scheduled dividend this year, 4c per share when its stock was valued at €1.30. Last year, it paid out 3c per share at €1. Another similar dividend is scheduled for next year, based on 2013 results.

Shareholder Ryanair has called this level of dividend "paltry" and "an insult" but Mr Mueller defended it.

"That equals a dividend yield of 3.5pc, which is absolutely competitive, a normal dividend earned in the year by our operating performance" he said. "But of course we will discuss whether a special dividend on top of that is the appropriate way to return money to shareholders."

A special dividend makes sense given that the airline's ability to pay out was boosted earlier this year by a court ruling which said it can increase the reserves distributable to shareholders.

It had been prevented from setting aside money for dividends because of concerns that this would cut the amount available to plug its pension deficit.

But in March, the High Court granted it leeway to reduce its capital reserves by €500m.

Analysts have previously estimated this could pave the way for a special dividend within the range of €50 to €100m.

Legal bills

But Mr Mueller has also said the legal bills Aer Lingus has had to pay to defend against Ryanair's takeover attempts are hampering its ability to pay shareholders.

He said its most recent dividend was worth less than half of what this defence has cost the airline in legal bills.

These legal costs have been estimated at more than €40m, while the most recent dividend was worth about €20m.

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