RYANAIR HAS launched its third takeover bid for Aer Lingus in six years. Can it now succeed where it has previously failed? Ryanair claims this time is different. So what has changed to justify its latest bid, a €694 million all cash offering for the formerly Stateowned airline?
Last September, Ryanair’s chief executive Michael O’Leary said Ryanair would not bid for the State’s remaining (25 per cent) stake “if any such offer would be regarded as unwelcome”. The Government has twice resisted Ryanair’s takeover attempts, which the European Commission rejected on competition grounds.
So what has changed materially to convince the company its latest bid can succeed? Ryanair points to two changes: the consolidation involving major European airlines in recent years, and the Government’s plan to sell its minority stake in Aer Lingus. Under the terms of the bailout programme with the European Union, the International Monetary Fund and the European Central Bank, the Government has agreed to sell €3 billion worth of State assets, including its Aer Lingus shareholding. However, there is nothing to suggest the Government has changed its mind about selling its stake to Ryanair.
Ryanair also faces obstacles, on competition grounds, to a successful bid. Last week, the UK’s Office of Fair Trading found that Ryanair’s minority stake in Aer Lingus may allow the former to exercise material influence over the commercial policy of the latter. The UK Competition Commission will now investigate the matter and could order Ryanair to sell its stake in the national flag carrier.
Aer Lingus has advised its shareholders to take no action on the Ryanair offer. It warned last February that any sale of the State’s minority shareholding to a rival airline whose interests clashed with the company’s aviation partners with whom it has flight-sharing arrangements would be damaging for Aer Lingus and for the Irish economy. Mr O’Leary regards an Aer Lingus takeover as an opportunity to form one strong airline to compete with Europe’s other major carriers. Tough competition between Aer Lingus and Ryanair, which between them account for 80 per cent of the traffic on routes between Ireland and the UK, has served passengers well. The battle for market share has meant more frequent flights, and kept fares low. A virtual Ryanair monopoly on the route would mean less competition and, most likely, a rationalisation of services, resulting in fewer flights and higher fares.