The Ryanair boss’s proposals to take over Aer Lingus have been knocked back on two occasions but he refuses to give up, and it’s unlikely he would go to so much bother without having a greater purpose in mind, writes Kyran Fitzgerald
MICHAEL O’Leary trained as an accountant. He can tot up the figures and he can calculate the odds.
He also knows that every big crisis throws up big opportunities and right now, shares in Europe’s legacy airlines are on the floor, and in some cases, quite cheap.
This may help to explain why he has decided to unveil his third offer for Aer Lingus, in which Ryanair holds a stake of just under 30%. The Ryanair boss has indicated a willingness to pay €1.30 a share for the company, valuing Aer Lingus at €694m.
O’Leary enjoys nothing more than springing a surprise, catching people — regulator and rivals alike — off guard.
He has certainly done so on this occasions. Aer Lingus boss, Christoph Müller, rushed out a holding statement. The trade unions condemned the move.
Enda Kenny reacted cagily. Transport Minister Leo Varadkar suggested that the price was too low. The idea of a union of Ryanair and Aer Lingus would certainly set the hearts of Labour Party ministers and TDs all aflutter.
When O’Leary unveiled Ryanair’s latest bumper set of results a few weeks back, there were certainly few hints of what was to come.
He told the assembled media that he was not interested in acquiring any national airline that would become available as governments reduced their stakes and he predicted that Aer Lingus would most likely be purchased by a foreign bidder and broken up.
The sum on offer represented a strong premium on the Aer Lingus share price, but is well below the €2.80 a share offered by Ryanair back in 2006, but then these are different times.
Ryanair must be one of the very few companies that is more flush than this time five years ago.
As O’Leary put it himself, recently: “We are generating so much money, we don’t know what to do with it.”
Net income was up 25% to €502.6m in the year to Mar 31 and its cash holding stood at €3.516bn, up by close to €600m on the previous year. At the same time, over €1.5bn has been paid back to shareholders over the past five years in the form of special dividends and share buy backs.
The company has hinted at a reduced profit of €400m to €440m in the current year, as the recession tightens its vice like grip, but as analyst Joe Gill has pointed out, such gloomy prognostications are par for the course at Ryanair.
Another regular event is the O’Leary prediction that he will retire to his farm in Westmeath in two years’ time. He has been producing this old saw, on and off, since the late 1990s.
The great showman’s understudies, Howard Miller and Michael Cawley, will no doubt have learned to contain their excitement by this stage when their boss makes such a prediction.
So what is O’Leary up to precisely? His Aer Lingus takeover proposal has been knocked back on two occasions now by the EU competition authorities, which are known almost never to reverse deal rejection decisions.
If Brussels cannot be brought on side, any deal will be dead in the water.
One aviation analyst suggested yesterday that the move could be connected with news of a UK competition commission investigation into Ryanair and its commercial activities between Ireland and Britain.
Such an investigation would be suspended while the EU Competition authorities carried out their own investigation into the proposed takeover.
A commonly held view is that O’Leary is acting to force other would-be buyers to declare their hand. At the very least, he has succeeded in putting a floor on the Aer Lingus share price and in putting the company into play.
However, the current EU bar on any full takeover of an EU airline by an overseas player also puts a ceiling on any likely price for Aer Lingus, something which could work to Ryanair’s benefit in the unlikely event that Brussels is won round.
O’Leary has certainly not gone out of his way to charm commission officials, but it is conceivable that he could win them round by offering to cede a significant number of Dublin-London routes to rivals such as BA in order to persuade the EC that the enlarged entity would not assume a dominant position on the route, deterring all comers.
The Irish Government, holder of a 25% stake, might be brought on side with the promise of an expanded operation out of Dublin Airport.
O’Leary may be calculating that there is a significant chunk of business, more affluent individuals and businesspeople, users of scheduled airlines out of hub airport, who could be captured by a revitalised Aer Lingus, backed up with extra aircraft, operating as part of the Ryanair group, but under a separate identity.
He may reckon that he could squeeze much greater efficiencies out of Aer Lingus, aware that its CEO has already carried out an effective spring clean job at the once bloated airline.
Of particular interest is the idea that O’Leary could be planning a reduced price transatlantic service, using Aer Lingus’s brand name strength and its valuable slots at hub airports, Heathrow, in particular.
Michael O’Leary is, at heart, a predator, a lone wolf, rather than an airline functionary. He may well be considering a big throw of the dice.
It is hard to believe that he would go to the trouble of acquiring Aer Lingus, with all the domestic political baggage attached, unless he has some much greater purpose in mind.
His mentor, Tony Ryan, had a global vision — a move now to transform the company which employed Ryan could be seen as a gesture towards the person who launched him on the route to success.
Three-and-a-half years ago, the Buffalo News in New York State reported that Ryanair was in talks with the authorities at Niagara Falls about commencing direct chartered flights to Ireland. It was suggested that Ryanair could add services into secondary airports like Baltimore and Providence on America’s East Coast.
Nothing came of the idea, then, but could that day come?
As things stand, airline prices to secondary US population centres are frequently exorbitant when compared with coast to coast offering. There is a market out there.
Nothing may come of such an idea and yet one can never tell. Tackling North America would be a tall order. The US can be a commercial graveyard, but then Ryanair has climbed some high mountains and it is certainly not lacking in resources.
The idea of Europe’s most successful airline securing licenses to open up low-cost feeder US routes on to the transatlantic network is attractive to say the least. It would certainly be ironic given that Ryanair was originally modelled on the US low-cost airline, South West Airlines.
O’Leary’s thoughts may, of course, be focused on European expansion.
The current turmoil does not appear to terrify him. He has welcomed the prospect of a return to a Greek drachma, for example, arguing that it will boost Greek tourism.
The Ryanair boss took 9/11 and an Icelandic volcano famously in his stride. Chaos, financial or otherwise, does not perturb him.
The bid proposal could also be one big bluff, designed to set cats on boardroom pigeons. You just can never really tell with Mick O’Leary.
Getting to know Michael O’Leary
* Born: 1961. Kanturk, Co Cork.
* Education: Clongowes Wood Third level: Trinity College, 1979-83: BA in business studies.
1983-85: Trainee accountant SKC (now KPMG).
1985-87: Ran chain of newsagents.
1987: Hired as personal assistant by Tony Ryan, founder-CEO of GPA, leading international aircraft leasing company.
1991: Hired as deputy CEO of Ryanair, airline founded by Ryan in 1985.
1994 to date: CEO Ryanair.
* Family: Married to Anita Farrell, 2003. Four children.
* Residence: Gigginstown, Co Westmeath; Ballsbridge, Dublin.
* Leisure: Stallions; cattle breeding. High point: victory of War of Attrition at Cheltenham gold cup.
* Net worth: Perhaps €500m.
“We deserve what we get because we elected that fool and ditherer three times.”
— on Bertie Ahern
“People who are borrowing €15bn a year to keep the lights turned on don’t have the wherewithal to vote ‘no’ to the people who are lending them that money.”
— on voting no in therecent treaty referendum.
“I don’t like aeroplanes. I never wanted to be a pilot like some of those goons that populate the air industry.”
— on flying
“We could do with a good, deep, bloody recession for 12 to 18 months. We need one if we are to see off some of this environmental nonsense.”
— on the economy in 2008
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