Confidence vote could sprout buyout

Etihad’s decision to buy a 3% stake in Aer Lingus is a vote of confidence in the Aer Lingus business plan and could be a precursor to a buyout of the 25% stake owned by the Government.

Bloxham analyst Joe Gill said a number of issues were raised by the Abu Dhabi-based airline’s move to buy a stake in Aer Lingus. These range from the Government’s concerns about the Aer Lingus brand, to the actions of Ryanair and concerns over the large hole in the airline’s pension fund.

Although Mr Gill said the decision by Etihad to buy into Aer Lingus was an endorsement of the Irish airline’s business plan, all analysts agree that the pension issue needs to be resolved before they buy a larger stake. Aer Lingus may eventually have to contribute to a pension deficit that rose to €700m at the end of 2011.

“The company is in extensive negotiations about the pension scheme. It is a piece of the jigsaw that needs to be addressed. Tough decisions needs to be taken by the people in the scheme,” Mr Gill said.

“There is a large deficit in the fund and there needs to be changes in its terms and conditions. There is an unwillingness amongst the members to take the decisions.”

Brian Devine, NCB Stockbrokers analyst, said he anticipates that the Government will step in to resolve the pension fund issue with in the year.

“The reality is that they [Etihad] are going to want to wait to see the pension issue cleared up first before they begin to act. The State is definitely going to be involved at this stage in trying to bring the whole thing to a head,” he said.

The great unknown in the whole shake-up of Aer Lingus is Ryanair, said Mr Gill. Ryanair owns nearly 30% of the airline and still harbours ambitions of taking over its Irish rival, according to the analyst.

Ryanair’s chief, Michael O’Leary warned if Etihad takes over Aer Lingus, Ireland could lose access to Heathrow.

“Etihad’s purchase of a 2.9% shareholding in Aer Lingus doesn’t alter the future of Aer Lingus, which can only be decided when or if the Irish Government sells their 25% stake.

“If this is sold to Etihad or to a financial investor, then it is inevitable that Aer Lingus will be broken up and some or all of its Heathrow slots lost to Ireland,” he said.

Mr Gill disagreed with Mr O’Leary’s assessment of the future of Aer Lingus’s Heathrow slots. “The slot portfolio in London Heathrow would be a factor for Etihad. They would only be after a single Heathrow slot initially.

“With the large aircraft that they have Etihad have bought, like the A380, they would be looking to slowly build up flights from London Heathrow. They would start with one a day and build customers until that flight is full.”