Aer Lingus - Ryanair bid is not going to go away

The defiance exhibited yesterday by Aer Lingus would give the impression that all is over in the Ryanair attempt to take over the recently privatised national carrier.

The realistic prospects are that the Ryanair challenge is not going away, but what may come back to the bid is their rather abrasive staff relations position.

Since the national airline went private on the Dublin and London stock exchanges last month, Ryanair began buying shares and once it had acquired 19%, Michael O’Leary publicly declared his intention to take over Aer Lingus.

From the outset he faced opposition in the shape of the Government’s shareholding which is more than a quarter, the pilots group with 2%, and the staff who, through the Employee Share Ownership Trust (ESOT), hold 12.6%.

Into the fray for the airline stepped Denis O’Brien, chairman of the Digicel Group, who bought a 2.1% slice, in a move which was seen as an attempt to thwart Michael O’Leary’s take-over attempt.

Currently, that bid is priced at e1.4 billion and at e2.80 per share is considered derisory by Aer Lingus.

It has described it as “ill-conceived, contradictory and anti-competitive”, and one which significantly undervalued the company.

Those were the words of Aer Lingus chief executive Dermot Mannion yesterday, who appeared exceptionally confident in declaring that he could not conceive of any circumstances where a bid from Michael O’Leary would succeed, even if the offer were to be increased by Ryanair.

Crucial to the Ryanair strategy will be the result of the ballot by the staff which is expected within three weeks’ time.

Mr Mannion believes that the vote will reject the Ryanair offer, so much so that when launching the Aer Lingus defence document yesterday, he predicted this would happen.

Unions in the company appreciate that its future strategy may involve further staff cuts, but Mr Mannion has refused to be drawn on this question, apart from saying that nothing has been ruled out or in regard to costs.

There has been no such reticence on Mr O’ Leary’s part. Instead, he is adamant that a successful bid would involve job cuts.

The disruption that would ensue in a possible job-cutting exercise might be viewed more preferable with Aer Lingus than with Ryanair. ESOT’s acquisition of further shares, through borrowing, to its present level obviously could reflect the confidence in the company.

While the outlook for Aer Lingus was glossily painted by the defence document, it invoked the Open Skies Agreement which has not been delivered yet.

When that agreement is reached, it would certainly afford the airline an opportunity for exceptional long-haul growth, as it has promised.

Adding a readymade long-haul arm to its operations would be a distinct advantage to Ryanair, especially as Aer Lingus says it has halved its costs since 2001.

The company, which recently announced an expansion of its destinations, has claimed that it grew its short-haul business out of Dublin three times faster than Ryanair last year.

With a target of a 15% return annually on its investment in new aircraft, and with capital needed for the future from its successful flotation, it remains to be seen whether investors will heed the Aer Lingus appeal not to sell their shares.