BA owner set to gain control of Aer Lingus

British Airways owner IAG is expected to gain control of Aer Lingus early next year, despite having an initial takeover proposal rejected.

The Aer Lingus share price shot up by nearly 14% by mid-afternoon, on the back of rising speculation about an IAG approach, which stemmed from a report in the Financial Times. However, those share gains were pared back when IAG formally confirmed it had submitted a takeover proposal, but that it had been rejected by Aer Lingus. IAG did not specify a price offering.

In a statement, Aer Lingus confirmed the receipt of “a preliminary, highly conditional and non-binding approach” from IAG, but said its board believed it “fundamentally undervalues” Aer Lingus and its “attractive prospects”.

In the last six weeks, Aer Lingus has had its pension deficit solution backed by employees and share- holders, has expanded its long-haul operations for next year, and has upgraded its 2014 earnings guidance, now saying that profits should beat last year, after previously stating they could fall by as much as 20%.

But the airline is looking for a new chief executive and has recently replaced its long-standing finance director.

Aer Lingus’s share rise was up by just over 9%, at €1.99, at closing.

Only one-third of Aer Lingus’s shares are in public hands, with Ryanair owning 29.8%, the Government 25%, and Etihad Airways owning 4%. Any takeover of the airline would need approval from its two largest shareholders, neither of which commented yesterday.

While Ryanair has previously stated its willingness to sell its stake, it is awaiting a ruling on its appeal to the British Competition Commission’s order to lower its stake in the former State-controlled carrier to 5%. That ruling could come today, the last day of the legal term.

An industry source suggested IAG would be an attractive buyer, saying the group could manage multiple brands with a strong financial base. The source said a deal was there to be done in the first half of 2015.

Three years ago, Ryanair’s Michael O’Leary said IAG would be the obvious buyer of the Government’s stake in Aer Lingus, but that no such investment would be likely before a solution was found for the airline’s pension deficit.