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'The price is wrong - that IAG bid just isn't a flier'

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Padraig O'Ceidigh

Padraig O'Ceidigh

Padraig O'Ceidigh

There are few better people who understand the mood and temperature of the key stakeholders in Aer Lingus than IAG chief executive Willie Walsh.

He also knows that a key factor in making a bid to acquire a business is timing.

You can bet your bottom dollar that the debate which has resulted about the offer for Aer Lingus has been preempted and discussed in detail by IAG.

As a result, they decided on, not only how much to offer for Aer Lingus, but also when to make this bid.

There is always head room to any offer, in particular when the approach was from the proposed acquirer. Remember, Aer Lingus was not being advertised as being for sale. This usually puts the potential acquired company in a strong position. However, we must remember that the best terms and price is usually obtained when there are more than one prospective buyers competing for a business.

Put simply, I believe that Aer Lingus should be sold to IAG but certainly not on the terms proposed.

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AIG chief executive Willie Walsh

AIG chief executive Willie Walsh

AIG chief executive Willie Walsh

The price being offered by IAG of €2.55 per share values Aer Lingus at €1.36bn. However, I believe that the share price is worth in excess of €3 per share which would value the company around €1.7bn.

The principal factor here is the value of the Heathrow slots which are not indicated as an asset on the Balance Sheet of Aer Lingus.

Putting an economic value on a Heathrow slot is not easy as they rarely become available. However, due to the demand to use this airport and the lack of available slots, they are a very valuable commodity. Also, early morning and late evening slots are more valuable than slots at other times of the day.

Aer Lingus operates 23 daily Heathrow slots and, just a few weeks ago the Scandinavian airline SAS sold one early morning slot for $60m. This would put a value of approximately €1bn for all of Aer Lingus slots. The seven slots allocated currently to both Shannon and Cork would be valued at somewhere between €300m and €400m.

Also, Aer Lingus is now an efficient and successful mid-sized airline achieved under the direction and stewardship of Christophe Mueller and his team. The company has significant gross cash reserves of almost €1bn, it has net assets of approximately €900m and shows consistent profits in strong markets.

I can also understand why the managmenet of Aer Lingus support this deal as the aviation industry globally is quickly moving towards consolidation. Being part of a much larger organisation will, in my view, not only secure but will also increase employment for Aer Lingus, Dublin airport and related services.

Their buying power will be enhanced which will support the creation of greater profits and investment in new fleet and routes in and out of Ireland.

All of this should bring a significant dividend to Irish tourism in general and to Dublin in particular.

I fully understand some local politicians fighting to protect the regional slots. I previously suggested that a "golden share" structure be considered whereby IAG would guarantee the four Cork slots and the three Shannon slots for as long as they would be in control of Aer Lingus.

Similar conditions are not unusual in acquisitions. I don't believe that this is too much of an ask, especially as the existing owners should be in control of the process. I don't buy the current offer of a five-year "guarantee" for those slots.

Remember that Aer Lingus is the fourth largest operator out of Heathrow.

Ultimately, I believe that the Government will support a sale. I urge them not to do so unless we get the best deal possible for Ireland.

The Irish people, with the Minister for Finance as custodian, own just over 25pc of Aer Lingus which would yield approximately €400m if the current IAG offer is accepted.

In order to understand the dynamics at play here let's separate the owners (the people of Ireland) from the custodian (the Government), as I believe that the objectives may not be fully aligned.

The Minister under the direction of the Government is required to make a decision on whether to sell or not based on the best interest of the owners.

However, there are curved balls coming into play, primarily politics. The Government wants to get re-elected next year and politicians will do whatever they can (within reason) to give them the best chance of achieving this objective.

Fine Gael in principal are open to the suggestion of a sale, however, their partners in Government, Labour, have a more difficult pill to swallow should they support the sale of one of the prized and loved State assets.

This is made more challenging in light of the current opinion poll trends.

Also, this debate is providing a wonderful grazing opportunity for all opposition parties to challenge the sale and attempt to undermine the Government parties.

As shareholders, we have to ensure that if we are to sell, we are doing so for the right reasons. As an island nation, we have to be guaranteed good and cost effective access to the world.

Heathrow is by far the most important destination point for us. Therefore those slots are vital. We get more foreign tourists visiting our shores through the Heathrow gateway than any other airport in the world. Tourism is one of the most important economic drivers for our economy. Those slots are particularly important for both Cork and Shannon.

I believe that Dublin will benefit significantly from a sale as IAG's marketing firepower and reach will provide instant global access to Ireland, and, in particular Dublin as a hub.

The problem is the terms of the deal on the table. We sometimes have a tendancy to undersell ourselves, I hope this is not one of those times.

Padraig Ó Céidigh is founder of Aer Arann/Aer Lingus Regional. He is a successful entrepreneur and Adjunct Professor of Entrepreneurship in NUIG.

Sunday Independent