Business Irish

Monday 20 November 2017

Why EasyJet may bid for Aer Lingus

WITH the Government under the cosh from the EU and the IMF to sell public assets, the State's remaining 25 per cent stake in Aer Lingus will almost certainly change hands shortly. Such a transaction will almost probably be the opening move in an eventual Aer Lingus takeover.

Ever since the botched September 2006 privatisation, Aer Lingus has been deadlocked. In an unsuccessful effort to have the best of both worlds the State retained a 25 per cent stake while the employee share ownership trust owned a further 14 per cent of the shares.

Within days of the privatisation, Ryanair pounced, launching the first of two bids for Aer Lingus. Although a Ryanair takeover of Aer Lingus was eventually blocked by the EU Commission, Michael O'Leary's company retained its 29 per cent shareholding in its main Irish rival.

The result was complete stalemate at Aer Lingus with the State and the ESOT adamantly opposed to any Ryanair takeover. With the State and the ESOT on one side and Ryanair on the other, Aer Lingus was effectively divided into two warring camps, both of which had the ability to block but were unable to prevail over the other.

Now there are clear signs that the deadlock may be about to end. The first moves came late last year. The ESOT distributed its Aer Lingus shares to the individual members, thus dissolving one of the main shareholding blocs, and the UK Office of Fair Trading announced that it was investigating Ryanair's stake in Aer Lingus, which at least raised the possibility that it would be forced to sell its shareholding.

Now, this week, Transport Minister Leo Varadkar held out the possibility that the State might be interested in selling its remaining Aer Lingus shareholding. In truth, with the EU and the IMF demanding public asset sales of up to €5bn, it doesn't have much choice. Suddenly the logjam at Aer Lingus is beginning to disappear.

International Airways Group, as the merged BA/Iberia is known, has long been seen as the most likely bidder for Aer Lingus. The Irish airline's Heathrow slots would certainly be attractive to IAG and an Aer Lingus takeover would no doubt provide its chief executive Willie Walsh, who was forced to quit as boss of the Irish airline in 2005, with a certain grim satisfaction.

With the European airline industry consolidating some of the other major airlines such as Air France, which acquired Dutch airline KLM in 2004 and Lufthansa, which has already acquired Austrian Airlines, Swiss Airlines and BMI, have also been considered as possible suitors for Aer Lingus.

But is the most obvious partner sitting there right in front of our eyes? While both the EU Commission and the UK OFT remain opposed to a Ryanair takeover of Aer Lingus, a takeover by second-largest European budget airline EasyJet would encounter no such difficulties.

With a current market capitalisation of just €361m and €350m net cash on its balance sheet, a takeover of Aer Lingus would effectively cost EasyJet nothing. Having been on the receiving end of Michael O'Leary's jibes for so long, swiping Aer Lingus from under his nose would be sweet revenge indeed for EasyJet and its founder Sir Stelios Haji-Ioannou.

Sunday Indo Business

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