State’s need for funds ‘could override other issues’ on sale

THE Government’s need to raise funds has the potential to override other issues when it considers whether to sell its stake in Aer Lingus to Ryanair.

NCB stockbrokers also said Ryanair will likely increase its offer for Aer Lingus to “a more |tempting” level of between €2 and €2.50.

“Facing intense financial pressures, the Irish Government’s position on the sale of state assets is shifting fast, and the need to raise funds to restructure public finances has the potential to override other concerns like upsetting the trade union apple-cart or Ryanair’s proposed virtual monopoly at Dublin Airport,” said NCB analyst Neil Glynn.

Mr Glynn said Ryanair’s €1.40 per share offer for Aer Lingus had “little chance of success”.

The Government would be in line for a windfall of between €268m to €335m for its 25% share if Ryanair upped its bid to between €2 and €2.50.

NCB expects Ryanair to consider a partial share alternative rather than an all-cash offer, meaning it could offer shareholders Ryanair shares in exchange for Aer Lingus shares.

“This would be potentially more tax efficient to the Employee Share Ownership Trust, and could allow the Government to roll its holding into a new national champion. It may also appeal to other shareholders, allowing them to benefit from the undoubted significant savings from a combination of the two airlines,” Mr Glynn said.

NCB said it still sees two major stumbling blocks.

“The competition issues longer-term remain considerable... Secondly, a successful bid by Ryanair could impair the potential future value of the State’s airport assets and the negative impact could well offset the proceeds of an Aer Lingus disposal.”

In a separate note, NCB said Ryanair continues to expand and it expects passenger growth of 17% in 2009.