Thursday 27 April 2017

Tie-up with BA becoming attractive for Aer Lingus

But takeover is unlikely with Ryanair holding a 29.8pc stake in company

Donal O'Donovan

Donal O'Donovan

Aer Lingus is looking for a partner among major international airlines but market sources yesterday played down the prospects of any immediate deal with the likes of British Airways.

Aer Lingus may be able to convince the Government to sell its 25pc stake if a suitable partner emerges from the search.

Meanwhile, British Airways (BA) chief executive, Willie Walsh, was in Asia this week, outlining his own plans to bolt on acquisitions to strengthen the UK airline's global reach.

Speculation among aviation experts is that the management of Aer Lingus could be able to convince two of its biggest shareholders -- the Government and Aer Lingus unions -- to jointly sell some of their shares to BA to seal a tie-up deal.

Such a deal would stop well short of a takeover but go much further than joining an aviation alliance.

Earlier this week, Aer Lingus CEO Christoph Mueller told trade publication 'Aviation Week' that he was interested in selling a stake in Aer Lingus to a larger airline.

Global

Mr Mueller wants to move Aer Lingus away from the low-cost model and back into the traditional, high-end, passenger service. To do that, business passengers in particular will want to book global journeys on a single ticket -- something membership of an alliance or partnership would facilitate.

Under Mr Mueller, Aer Lingus has spent the past year focusing on a return to profitability in 2011.

Analysts say that goal is now in sight, after cutting a €93m loss to €19m this year. And they say that this means the ground has now been prepared for the strategic tie-up that Mr Mueller favours.

A fully-fledged takeover of Aer Lingus is almost certainly not on the cards, however.

For one thing, any attempt to do so would run up against Ryanair's 29.8pc stake in Aer Lingus. It gives Michael O'Leary's company no say in the running of rival Aer Lingus, but it is big enough to block any takeover bid Ryanair does not support.

Ryanair would trigger an automatic takeover offer if it raised its own stake any further, but it has been blocked from buying Aer Lingus outright by the EU Commission and European Court of Justice on the grounds that combining the two airlines would be anti-competitive.

Whatever his strategic vision as CEO of a listed company, Mr Mueller doesn't have a stake to sell. After Ryanair, the Government is the next biggest shareholder with a 25pc stake, while unions hold 12.47pc.

Ryanair is unlikely to support a rival takeover after its own bid was blocked, but the Government and unions could be amenable to fostering a deal, analyst say, even if it made the once 'flag carrier' a minor player in a bigger entity.

With that in mind, a well-timed media campaign might do no harm at all.

Even a loss-making Aer Lingus has some very strong attributes and assets. It has the fourth-highest number of slots of any airline at London's Heathrow -- key assets for any airline serious about connecting to long-haul BA flights.

It has an established and well-regarded brand in the US and in Europe. Indeed, Willie Walsh recently told reporters that acquisitions by BA could be executed while retaining established brands.

Under any deal, BA would be likely to channel Irish passengers to Aer Lingus flights, transferring them onto its own planes to travel further afield.

While that might allow Irish consumers easier access to some routes, it is also likely to lead to a reduction of long-haul flights from Dublin -- though core flights to New York, Boston and Chicago are likely to be retained.

A tie-up with a continental rival would suffer by comparison, if only for the simple reason that channelling Irish passengers to any hub on mainland Europe would add an hour at least to most journeys.

Irish Independent

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