To quote Sherlock Holmes, the game is afoot at Aer Lingus..
After a period of shadow boxing, the board of Aer Lingus on Tuesday recommended the all-cash €2.55 a-share offer from Willie Walsh's International Airlines Group.
There's a whiff of inevitability about the bid. Becoming part of the IAG family (British Airways, Iberia and Vueling being the others) would mean Aer Lingus would once and for all remove itself from the clutches of Ryanair, its biggest rival and largest shareholder.
For its part, Ryanair would get back the money it has invested in Aer Lingus since 2006. If, as many suggest, Michael O'Leary has thrown in the towel on ever being able to acquire Aer Lingus, this would at least allow Ryanair a graceful exit.
The narrative around the bid is also that Aer Lingus’s days as an independent airline are numbered and that it could come a cropper whenever the next major bout of turbulence hits the aviation sector. So it needs to huddle for warmth. It’s a handy narrative but not necessarily accurate.
Aer Lingus began flying in 1936. It has survived a world war, the 1970s oil crisis, 9/11 and Ireland’s worst recession in living memory. Not to mention fierce competition from Ryanair since O’Leary took the helm. It has stood on its own two feet quite well since the turn of the century and it has arguably had its best trading years during the recent recession. Aer Lingus recorded a profit in 11 of the years between 1999 and 2013. In the four full trading years from 2010, it made an aggregate profit of €187 million while its operating surplus for the first nine months of 2014 was €103 million. Revenues over these four years rose by 15 per cent. At the end of last September, the airline had €973 million in gross cash while passenger numbers (including Aer Lingus Regional) last year hit a record 11.1 million.
On Christoph Mueller’s watch, Aer Lingus has successfully established Dublin as a hub to North America with the number of passengers carried on its transatlantic services rising by 20.6 per cent last year. This is no deadbeat airline.
Air access
As an island nation, it goes without saying that air access is vital to the economy. Aer Lingus flies east and west from Ireland, making it strategically important for the country for tourism and investment.
With two representatives on the board, the State has a loud voice in setting policy. It was a little persuasion from Government that led to Aer Lingus re-establishing the Shannon-Heathrow and Dublin-San Francisco routes in recent years.
Aer Lingus’s 23 Heathrow slot pairs are hugely important to Ireland, not just in terms of getting people from Dublin, Cork and Shannon to west London but in terms of the connectivity that it offers to the rest of the world. About one-third of the traffic from Dublin to Heathrow is connecting onwards and this has remained steady in spite of Etihad and Emirates offering twice daily services from Dublin to their respective shiny hubs in the UAE.
Do we really want to hand over control of these routes to IAG?
There's also an assumption that Aer Lingus would be in safe hands with Willie Walsh, its former chief executive. What about when Walsh leaves?
Would his successor, probably a City of London grandee, be sympathetic to Aer Lingus whenever the next crisis buffets the airline sector? Or worry about using its Heathrow slots for other routes within the IAG family?
British multinational Diageo owns Guinness and spends a lot of money each year telling us how it cherishes the company's heritage and the iconic status of St James's Gate brewery in Dublin. But it has also closed breweries in Kilkenny, Dundalk and Waterford in the past few years and recently sold Bushmills Irish whiskey. These were hard-nosed business decisions taken in the interests of the plc rather than the affected communities in Ireland.
IAG has said Aer Lingus would retain its own brand and management structure under its ownership but be in no doubt that control over policy would move from Dublin to Hounslow.
The Government could pocket €340 million from the sale of Aer Lingus but this decision is about more than financial considerations.
If Willie Walsh is so enchanted with Aer Lingus, there’s a vacancy for chief executive waiting to be filled.
