Ryanair's third takeover bid for Aer Lingus may be its most astute to date - offering a 46.7% premium on the recent share price, and committing to preserve the flag carrier's brand - but doubts persist over the long-term impact of consolidating Ireland's aviation sector, as well as the willingness of UK and European regulators to wave through a deal.
Europe's largest low-cost carrier, which already owns a 29.8% stake in Aer Lingus, declared its intention to acquire a majority holding yesterday (19 June) - offering €1.30 per share against a closing price of €0.94. The bid has already been condemned by Ireland's opposition party, Fianna Fail, which fears that the €694 million ($882 million) valuation could entice the cash-strapped government into selling its unwanted holding for €175 million.
Dublin's hostility towards a takeover "may have waned a little" following its full-blown economic crisis, admits Peter Morris of Flightglobal's data and consultancy arm Ascend, but he adds that such political "disengagement" pales in comparison to the more pressing regulatory hurdles.
The UK's Office of Fair Trading (OFT) just last week referred Ryanair's minority stake to the Competition Commission, Morris notes, raising questions about whether the low-cost carrier has timed its latest bid to disrupt that investigation. "Once the Competition Commission have got their teeth into it, the only thing that would make it more complicated would be if the two companies merged," he says. "It will muddy the waters gloriously."
Alluding to the bureaucracy involved in antitrust probes, Morris speculates: "Ryanair's intention might be to remove some of the clarity that currently exists about the legal position. By removing that clarity the whole process would have to start again. Eventually the politicians lose their enthusiasm."
Even if Ryanair succeeds in rendering the OFT probe obsolete, though, it is unlikely that the carrier will receive a more sympathetic ear in Brussels.
It was the European Commission which scuppered Michael O'Leary's first takeover bid in 2007, and his claim that consolidation has "changed materially" the competitive landscape pays little heed to the particulars of Ireland's duopolistic market. A combined Ryanair-Aer Lingus would command 80% of the 370,000 monthly journeys between the UK and Ireland.
Though O'Leary promises to delineate the two carriers - "preserving the best features of both ... within one strong Irish airline group" - it is clear that short-haul overlaps would see the flag carrier undergoing the Ryanair treatment. "By lowering Aer Lingus's unit costs and fares, growing its business at some of Europe's major airports, and competing with high-fare incumbents, Ryanair can significantly increase Aer Lingus's profitability," remarks the chief executive tellingly.
No-one doubts that such rationalisation would deliver operational synergies for the group - much as it looks set to do, O'Leary repeatedly emphasises, for Air France-KLM and IAG - but the biggest prize may ultimately be the one part of Aer Lingus's network which would be exempt from an "ultra low-cost" makeover.
"Having a brand like Aer Lingus on longer-haul [routes] may be very useful," Morris explains, suggesting that its transatlantic operations may be treated as a "testbed" for the oft-promised but elusive low-cost, long-haul model. Retaining the flag carrier's transatlantic schedules, fleet and overseas personnel would be "much easier than trying to build a Ryanair long-haul brand, which probably would have some difficulty gaining traction".
Aer Lingus has so far been guarded in its response, simply noting the "uncertainties" created by the OFT probe. Its shares closed up 18.2% at €1.10 today. The only certainty, at this stage, is that O'Leary sees far more value in the flag carrier.
Source: Air Transport Intelligence news
