Government should buy Ryanair stake in Aer Lingus
If I was a shareholder, I would take Willie Walsh's arm off to accept his €2.55 bid for my stake in Aer Lingus - but as an Irishman, I would send him packing.
Small shareholders will be queuing up to pocket the titillating bag of gold being dangled before their giddy eyes by the International Airlines Group (IAG) chief. Last year, Aer Lingus shares bottomed out at €1.27 each. Last month, before Willie wandered onto the scene, they stood at €1.77. Suddenly, following a series of lightning bids, the little guys are for once quids in. Or so it seemed.
A dazzled Michael O'Leary is poised to accept an offer that occurs at an uncannily fortunate time for Ryanair. The flamboyant airline chief is almost certain to be ordered to reduce his Aer Lingus stake from 30pc to 5pc by a London court in the coming weeks. O'Leary, a forced seller, has been rescued at the eleventh hour by his old rival, Willie Walsh.
The board of Aer Lingus has thrown in the towel, recommending that shareholders (including the Irish Government) take Walsh's money. Willie's timing was perfect. All his ducks were in a row. Bar one.
Towards the end of last week opposition to the deal was gathering steam. Even as stockbrokers' analysts and aviation specialists were insisting that the airline was fully valued by Walsh's bid, resistance to his approach has mushroomed. By Friday a frisky herd of nervous pilots, politicians and airline interests was morphing into a political stampede.
The markets were uncharacteristically edgy. Despite a bid price of €2.55, on Friday the shares tumbled back to €2.20. In normal takeover situations they might have traded at the offer price, even at a small premium in case there was another bidder lurking in the shadows.
Not at Aer Lingus. Outside the stock market, a bigger game was being played. Willie may have convinced the board, cornered Michael O'Leary and overwhelmed the smaller shareholders with his largesse - but he hadn't bargained with changing political realities.
In 2006, the last time Willie bid for Aer Lingus, he was thwarted by Bertie Ahern. This time the Labour Party is his nemesis. Ironically, the junior coalition partner secretly welcomes Walsh's intervention. It gives them the opportunity to renew their wedding vows with the trade unions. Here was a lifeline for the Labour party corpse.
Willie provided an opening to prove that the old dogma - "State ownership good, private enterprise bad" - was not dead. All week Labour loyalists were competing with opposition politicians, stumbling over each other on the Leinster House plinth to compete for anti-takeover soundbites. Labour was suddenly not only aping Bertie's old role as the protector of the North Dublin jobs in his bailiwick, but was playing to the gallery in the constituencies surrounding Cork and Shannon airports.
Hardly a word has been written or heard about the €325m the Exchequer would receive from the possible sale. The sum is secondary, even if Willie is paying over the odds. Apparently we, a recovering bankrupt nation, no longer need the money. The Government will not be taking a cold commercial decision, but will be looking at the overall picture for the nation.
So said Transport Minister Paschal Donohoe on RTE's Prime Time last week. Paschal is feeling the heat, not only from Labour backbenchers but also on the ground, as Bertie's successor in the Dublin Central constituency. He will be pondering not just the possible injection to the Exchequer but, primarily, the danger to Fine Gael and Labour Dail seats if the Coalition flogs the State's 25pc stake. He would not be human if the number of vulnerable Aer Lingus staff living in his own patch (formerly Bertie's backyard) did not influence his thinking.
But Paschal will not make the final decision. It will be made by the four oligarchs sitting in secret conclave under the working name of the Economic Management Council.
Enda Kenny, Michael Noonan, Brendan Howlin and Joan Burton will hand down their verdict to the Cabinet. The criteria will be nakedly political. Perversely, just because the quartet are ruled by political considerations, it does not mean that they are always wrong.
It will now be difficult for Fine Gael to sell a sale to its TDs. The stampede of Labour TDs towards the exit may now be unstoppable. This weekend it seems inevitable that the Government will turn down the bid, but not before it pretends (in the minister's manicured words) that it has considered the bid "very, very carefully".
Yet Walsh will undoubtedly be willing to meet many of their objections. Sources close to IAG suggest that he is of a mind to concede ground on all the main fears of the Government. Walsh knows Ireland inside out. He would not have made a bid without creating plenty of elbow room on the ultra-sensitive Heathrow slots, connectivity, access, jobs, tourism and the particular problems faced by Cork and Shannon airports.
My bet is that the Labour Party will not accept a new owner, whatever concessions he offers. The "negotiations" that are ongoing have dim prospects of success. Labour has found a vehicle for recovery. It is not going to allow inconveniences - such as a solution - to mess it up. Paschal and the Economic Management Committee will follow suit.
The political circus has clouded the real merits of the arguments against the takeover.
There are legitimate fears about the loss of the Heathrow slots and the consequences for Ireland. The resistance of Cork and Shannon airports to a takeover by Walsh at the Oireachtas Transport Committee last Thursday was convincing - not because of the self-interest involved, but because many multinationals have insisted that the loss of airports in the regions could be a deciding factor on whether they remain here.
Like it or not, multinationals create far more jobs than any airline or airport. We cannot afford to lose them. Unlike the Labour Party, the foreign investors are not grandstanding.
Nor can we afford to lose tourism, or to hand access to Ireland over to those who have no interest in its success. And €2.55 a share is no answer to these concerns.
Critics of the takeover insist that IAG's promises on the slots or on Shannon and Cork are unenforceable; that Willie the Irishman may nurse a sentimental attachment to our emblematic national airline but Willie's successor may not share such nostalgic, non-commercial feelings.
In short, the promises may not be legally binding. And surely all shareholders should be treated equally? Imagine Michael O'Leary's reaction if the Government was granted special treatment?
Paschal is in a pickle. According to Merrion Stockbrokers' head of research David Holohan, should the Labour Party drive Walsh around the twist with their current antics, he may just bid for the other 75pc - leaving the Irish taxpayer marooned with a worthless, powerless 25pc holding. Then we might lose the lot, including the Heathrow slots. On Prime Time the minister made it clear that his 25pc holding cannot block any disposal of the Heathrow slots.
So what should the Government do? It seems obvious. Ireland needs to protect its access to the slots. It needs to promote tourism and to control access and connectivity. It needs a majority stake in Aer Lingus. Paschal should forget about selling his 25pc share to Walsh. Instead, he should sit down with Ryanair's Michael O'Leary and buy his 30pc holding. The conversation should take about five minutes.
The Ryanair boss (a forced seller) would meet the minister (a forced buyer). The State would then hold 55pc of the company. He would save the Heathrow slots, Cork, Shannon, Irish tourism. And his North Dublin Dail seat.
He might even save all those threatened Labour party seats in North Dublin, Limerick and Cork.
Once again, the Government would have made the right decision for all the wrong reasons.
Sunday Indo Business