Tuesday, January 01, 2013

Airlines are in a holding pattern as Brussels mulls Ryanair pitch

Ryanair came out of the traps in June this year with a €694m offer to buy out Aer Lingus. It marked its third effort to buy its smaller rival, in which it already has a near 30pc stake.

But having had its first takeover attempt – launched in 2006 – blocked by the European Commission on competition grounds, Ryanair was always going to have to pull out all the stops if it wanted to get the green light from Brussels this time around.

That brought what Ryanair boss Michael O'Leary described as a "radical" set of remedies from the budget carrier to put before EU competition mandarins, including plans to ditch almost all the 24 valuable takeoff and landing slots currently controlled at London's Heathrow Airport by Aer Lingus.

IAG-owned British Airways has already told Ryanair that it would take 20 of the slots if the Aer Lingus takeover was approved.

But it's still a very big 'if'. In November, the EU's Competition Commission issued Ryanair with a so-called statement of objections, in which it told the airline that its proposed remedies had not yet passed muster.

It also hasn't yet been convinced that a merger between Ryanair and Aer Lingus would result in efficiency gains that would eventually result in lower prices for consumers.

The top concern will remain – how competition will be affected in what is a small, isolated market.

It's difficult to see the EU approving the merger notwithstanding the fact that the European aviation industry has seen a flurry of M&A activity and failures in the past year. Analysts are also unconvinced that Ryanair will pull a rabbit out of the hat this time around.

In tandem to this, Ryanair has been fighting in the courts to prevent the UK's Competition Commission from probing the airline's stake in Aer Lingus. The watchdog wants to determine whether Ryanair's stake has had undue influence on its smaller rival's strategy and damaged competition on services between the UK and Ireland.

The UK's Court of Appeal ruled in December that the Competition Commission does have the right to investigate. Ryanair has said it will challenge the ruling in the Supreme Court.

Importantly, the Competition Commission – if it found that anticompetitive issues exist – could tell Ryanair to sell its Aer Lingus stake. That could result in further protracted legal action, however.

But things will probably come to a head well before that.

A final decision from the European Commission on Ryanair's latest Unions, Aer Lingus staff, business groups, politicians and a range of interested parties will row in to do everything they can to prevent the takeover takeover attempt is due on February 6.

Even if it approves it, Ryanair will still have to persuade shareholders – including the government, which controls the state's 25.1pc stake in Aer Lingus, that this is a good deal. It seems like an almost impossible sell.

Unions, Aer Lingus staff, business groups, politicians and a range of interested parties will row in to do everything they can to prevent the takeover even if the EU did give Ryanair the thumbs-up to proceed.

And if by some twist of fate Ryanair did succeed in acquiring Aer Lingus, it's probably safe to say it would be viewed by staff as an occupying force. One can only imagine that resistance to any proposed staffing or operational changes in Aer Lingus would be intense.

Abu Dhabi-based airline Etihad, which owns just under 3pc of Aer Lingus, is also waiting in the wings. Its chief executive, James Hogan, has made it clear that the airline would be interested in buying a bigger stake in the Irish airline. For Aer Lingus, Etihad would undoubtedly be a preferred partner.

Michael O'Leary has predictably said that Aer Lingus is doomed if Ryanair doesn't take it over.

He has also claimed that Ryanair has had approaches from financial institutions interested in acquiring its Aer Lingus stake if the EC doesn't allow a takeover to proceed. Mr O'Leary insists this will result in Aer Lingus being broken up.

It's true that in the longer term Aer Lingus will need a strategic partner. But those partners are now tougher to find in a European aviation landscape that is extremely challenging and has seen a number of players – including IAG's Iberia and SAS to name just two – struggle to realign themselves.

And heaven forbid, what if a Ryanair takeover did end up being the best thing that ever happened to Aer Lingus? It seems almost certain that we will never find out if that would have been the case

- John Mulligan

Story:    http://www.independent.ie

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