An institutional shareholder in Aer Lingus has told the UK's Competition Commission that Ryanair might be able to stop the former state-owned carrier from raising equity to fund new aircraft purchases if such a situation arose.
The UK watchdog is investigating Ryanair's near 30pc stake in Aer Lingus to see if it is exerting undue influence on its smaller rival. The commission is due to deliver a preliminary finding this month and has the power to force Ryanair to sell all or part of its stake in Aer Lingus.
One shareholder – identified only as 'Shareholder C' – said that Aer Lingus might at some stage in the future need to issue fresh equity in order to fund additional fleet purchases, for example.
"Ryanair could be in a position to block the raising of capital to fund any such requirements by issuing new shares," the shareholder warned.
The biggest shareholders in Aer Lingus are Ryanair, with almost 30pc and the Government, which owns 25.1pc. Businessman Denis O'Brien owns 3.8pc, while Etihad owns almost 3pc. Institutional shareholders are separate to those.
The institutional shareholder who spoke on the possible impact on fresh equity raising has traded in Aer Lingus shares on behalf of clients since the airline's 2006 flotation.
'Shareholder A' is an investment management firm. It told the commission that it had invested in Aer Lingus shares because it considered it to be undervalued due to its Heathrow slots, aircraft fleet and strong position on the London-Dublin market.
It also believed that further improvements could be made to Aer Lingus through operational changes and cost-saving measures that would result in higher value for shareholders.
"Shareholder A was aware that Ryanair could, in theory, block a special resolution to raise capital by issuing new shares," noted the commission.
"However, it considered this to be an unlikely situation due to Aer Lingus's significant cash held in its balance sheet and operational profitability."
"Shareholder B considered it unlikely that Ryanair would vote in favour of a special resolution to override pre-emption rights when raising share capital due to the likelihood of dilution of its shares," added the commission. "Shareholder B did not consider, however, that Aer Lingus was in a financial situation which would require it to raise capital through a rights issue due to its low levels of debt."
That shareholder also did not believe Ryanair's stake in Aer Lingus had given it any control over its rival.