Ryanair Expects Aer Lingus Bid Won't Fly

Updated February 12, 2013, 9:59 a.m. ET

By MARIETTA CAUCHI
Wall Street Journal

 
LONDON—Ryanair Holdings on Tuesday said it would appeal an expected decision by European regulators to block its takeover of Irish carrier Aer Lingus, despite offering "unprecedented" remedies to maintain competition on Irish routes.

The discount airline said it had been notified by the European Commission that the regulator intended to block the €694 million ($930.3 million) takeover—Ryanair's third attempt at a merger—during a meeting ahead of a March 6 deadline for a decision.

A Ryanair plane takes off from Barcelona airport, in a file picture taken on Sept. 1, 2010.

"It appears clear from this morning's meeting, that no matter what remedies Ryanair offered, we were not going to get a fair hearing and were going to be prohibited regardless of competition rules," Ryanair said, adding that it will appeal the decision in European courts.

Ryanair currently holds 29.8% in Aer Lingus. The Irish government, which has a 25% stake in Aer Lingus, opposed the bid.

The news comes just 10 days after Ryanair submitted the latest in a string of concession packages to secure approval to acquire Aer Lingus, after the commission—the European Union's regulatory arm—signaled that remedies proposed earlier were insufficient.

In the latest package, regional carrier Flybe Group would have taken over 43 Aer Lingus routes, guaranteeing €20 million in annual profit as well as a €100 million upfront payment for Flybe. The aim was to convince the commission that Flybe was a credible competitor to Ryanair despite issuing several profit warnings over the past two years and cuts to its U.K. workforce, announced last month.

Ryanair had also proposed to transfer all of Aer Lingus's routes between London Gatwick and Ireland to British Airways, a unit of International Consolidated Airlines Group SA, or IAG. Under the previous package, British Airways would instead have received the routes between London Heathrow and Ireland.

"Given Ryanair's remedies package clearly addresses every issue raised in the EU's statement of objections, any decision to prohibit would be manifestly unfair and in contravention of EU competition rules," said Ryanair spokesman Robin Kiely. "Ryanair has no alternative but to appeal any prohibition decision."

But others have noted the contrasting business models operated by Flybe and the two Irish airlines.

"How can Flybe compete with Ryanair? It's impossible. It's the classic motivation of the corporate raider," Aer Lingus Chief Executive Christoph Mueller said in an interview last week. "You can manipulate any marketplace with artificial competitors. Ryanair would even write the business plan for Flybe—this is very, very flawed," Mr. Mueller added.

Aer Lingus on Tuesday said it hadn't been notified of any decision from the commission and that it intends to oppose Ryanair's offer for the company.

Ryanair and rival low-cost airline easyJet  have ramped up pressure on national carriers already squeezed by high fuel costs and a sluggish economy.

Earlier on Tuesday, IAG said its Spanish unit Iberia had started the formal process of collective redundancy over 3,807 jobs, part of its plans to cut capacity by 15%. And Deutsche Lufthansa AG,  Europe's biggest airline by passengers; smaller German rival Air Berlin; and Air France, owned by Air France-KLM SA, are all reorganizing their operations to stem losses.

—Dan Michaels and Vanessa Mock in Brussels contributed to this article.

Source:  http://online.wsj.com