IAG: Takeover would maintain connectivity to and from Irish airports

Shares in Aer Lingus rose again yesterday following confirmation from the airline’s board that it is willing to recommend IAG’s third bid to its shareholders for approval.

IAG indicated it would only proceed with its third proposal with a signal from the Aer Lingus board that it would be willing to recommend the revised €2.55 per share offer.

The airline group, headed by former Aer Lingus CEO Willie Walsh, said it intends to allow Aer Lingus to operate as a separate business with its own brand, management, and operations.

In a statement, IAG also said that under its ownership, Aer Lingus would continue to provide connectivity to and from Irish airports. It said it believes the proposal would strengthen Aer Lingus’s brand and long-term future in a successful European airline group, offering significant benefits to Aer Lingus and its customers.

The Government is under pressure from business groups and opposition TDs to use its 25.1% stake to ensure that the country’s connectivity is protected as part of any sale. European competition authorities will also move into focus if the Aer Lingus board recommends the offer to its shareholders.

Unlike the previously mooted Ryanair-Aer Lingus merger, IAG’s business doesn’t overlap with the Irish carrier in many instances, but the Dublin to London city-pair may prove an issue, according to Davy aviation analyst, Stephen Furlong.

Should IAG’s takeover be successful, the group may have to give up some of its routes to third parties — the result of which could impact on British Airways’s business more so than Aer Lingus, however.

Whether the commission chooses to appraise the situation on a city rather than airport business will also have a bearing, Mr Furlong said.

On a city basis, the substantial traffic carried by Ryanair, CityJet, Flybe and others would come into play and dilute concerns.

As well as European authorities, the Dáil would also have to approve any disposal of the Government’s holding. If the State’s shareholding is sold at the current offer price of €2.55, the State would receive over €340m while Aer Lingus’s largest shareholder, Ryanair, would receive over €400m.

Ryanair CEO Michael O’Leary last week hinted at the possibility of launching a fourth bid to take over Aer Lingus but is likely to see the opportunity to recoup its investment as reason enough to sell.

Middle East airline Etihad which holds 4.9% of Aer Lingus’s shares, has been touted as a potential buyer but sources indicate IAG is likely to be the airline’s current suitor at present.

While the IAG bid has a clear strategic rationale in terms of gaining access to Dublin as well as gaining flexibility on the Heathrow slots, offers from other carriers wouldn’t have the same merit which would make other bids for the airline unlikely.