Ryanair faces paying millions extra to Flybe in Aer Lingus deal
Published 12/02/2013 | 04:00
RYANAIR could wind up paying tens of millions of euro extra to Flybe on top of the €100m it's already pledged to the UK carrier to take over 43 Aer Lingus routes.
Ryanair has agreed to hand over the Aer Lingus routes, €100m in cash and €50m in advance ticket receipts to Flybe if it succeeds in acquiring the former state-owned airline.
But Ryanair would have just months following an acquisition to ensure the part of Aer Lingus it plans to give to Flybe is operating in line with a pre-agreed cost base.
Flybe chief executive Jim French confirmed to the Irish Independent that if the cost base was higher than agreed with Ryanair, then the Irish airline would be forced to hand over twice the difference in cash as a penalty.
That means that if the annual cost base associated with the 43 Aer Lingus routes is meant to be €300m, for instance, at the time Ryanair hands them over to Flybe, but is actually €320m, Ryanair would be forced to hand over an additional €40m to Flybe.
There's no ceiling on the extra amount that Ryanair could be forced to pay Flybe if the cost base target isn't met by the handover date.
Conversely, if the cost base is lower than agreed, Ryanair will claw back some of the €100m it plans to give Flybe.
If the cost base is €290m, for example, compared with a €300m target, Ryanair would take €20m back from the €100m it has offered Flybe. But Flybe is guaranteed to receive a minimum of €75m of the agreed €100m from Ryanair.
Ryanair has also guaranteed that Flybe will make a pre-tax profit of at least €20m in the first year of operating the Aer Lingus routes.
Mr French and Flybe chief financial officer Andrew Knuckley were in Dublin yesterday to reveal additional plans for their new services in Ireland in the event Ryanair manages to buy Aer Lingus.
Ryanair has made the agreement with Flybe as part of a remedy package it has given the European Commission in an effort to ease competition concerns and persuade Brussels to give the green light to Ryanair's third attempt to buy rival Aer Lingus.
The routes that would be transferred have annual revenues of about €300m and carry 3.2 million passengers a year – a third of the Aer Lingus total.
Mr French said increasing frequencies on some routes by using smaller jet aircraft would be a key objective.
Under the agreement with Ryanair and the EC, Flybe would be allowed to eliminate between 5pc and 10pc of the 43 routes each year for the first three years without penalty but would have to redeploy capacity on other Irish routes to ensure overall capacity doesn't decrease.
The plan would also see about 600 Aer Lingus staff transfer to a new company called Flybe Ireland.
Mr French said those staff might prefer to join Flybe than to work for Ryanair.
"There is an argument that quite a lot of staff may not want to work for Ryanair," he said. "There's a lot of cabin crew and pilots who might say that they'd don't like the ethos of Ryanair."