The Christmas TV ads may have still have the dewy-eyed emigrants returning on planes with the green shamrock, but Aer Lingus hasn’t really been the national carrier for quite a few years, at least not if these things are judged by ownership. The State sold down its previous majority shareholding in 2006 when it floated Aer Lingus on the stock market and currently holds a stake of just over 25 per cent.
Aer Lingus is now owned by a whole range of interests – and the emigrants are as likely to be returning courtesy of the yellow harp of Ryanair.
If an offer emerges – and it now looks odds-on that IAG will bid – the Government will have a choice to make: to sell or to hold its stake? But as a minority shareholder with a stated intention to sell, the Government cannot control the future of the airline.
It has been obvious for some time that Aer Lingus was going to move into new ownership – either with one new owner or a completely restructured group of shareholders. The Government has made it clear that it would sell its 25.1 per cent stake “at the right time and under the right conditions”. Ryanair is likely to be obliged to sell down its 29.7 per cent stake to, at most, 5 per cent by UK competition regulators. It is likely to lose an appeal against a UK Competition Commission ruling on this point and barring an unlikely victory in the UK Supreme Court, will be obliged to sell. So like the Government, Michael O’Leary has a choice to make: he will have to sell, but will it be to IAG boss Willie Walsh ?
Initial offer
IAG – the parent of British Airways and Iberia – has made an initial approach to the Aer Lingus board. While the board rejected the initial offer, there is no doubt the game is now on. Not only are two big shareholders looking to sell, but the airline is effectively without a chief executive following the announcement that Christoph Mueller is stepping down.
Enter Willie Walsh, the former chief executive of Aer Lingus. Walsh, who got the airline through the dreadful period after September 11th, 2001, fell out with then taoiseach Bertie Ahern in 2005 when Walsh mooted a sale of the airline which would have involved the then management team. Now, almost 10 years later, he could finally get his hands on the national carrier as part of his empire, which also includes British Airways, Iberia and Vueling, which flies from Barcelona.
What should the Government do? It needs to do two things. The first is to extract the best possible price. The second is to do what it can to safeguard Ireland’s connectivity with the rest of the world.
The State could refuse to sell its minority stake, but this would not stop someone else exercising effective control. The era when the Department of Transport was the downtown office of Aer Lingus is long gone. The decision to sell or not, presuming a full bid emerges, needs to be made on the basis of logic and not emotion. And the logic is that a 25 per cent stake in anything gives a limited amount of influence and that IAG, provided it made various commitments on retaining and building traffic, appears the most logical owner.
If the price is right – potentially netting up to €300 million for the Government – then it will come down to connectivity. The key prize for IAG is the 23 “slots” – daily landing and take-off rights which Aer Lingus owns at Heathrow. The Government would hope that IAG would not move a significant number of these slots from the Dublin-London route and use them instead for more lucrative long-haul options.
IAG might want, over time, to move some of the Heathrow slots to long-haul flights, but will also want to continue ferrying customers from Irish airports to London – both for the profits this can generate and also to feed Irish passengers to other long-haul BA routes out of London.
Strategic shareholders
Other airlines could emerge as potential strategic shareholders. One example is Etihad Airways, the Middle East airline which already holds 3 per cent of Aer Lingus, though EU rules would limit its total stake to less than 50 per cent.
The same would apply to other non-EU purchasers such as Delta, the US airline which now owns Richard Branson’s Virgin. Part of Walsh’s long-term aim is keeping these airlines off his patch by getting control of the Heathrow slots.
A vital national interest is that the market remains competitive. Remember how much it used to cost to fly anywhere out of Ireland before Ryanair delivered competition? It used to cost more than €600 to get a return flight to Brussels and the cost of Dublin to London flights fell by more than 50 per cent after the market was deregulated in 1986.
Competition
The main disadvantage of the proposed takeover of Aer Lingus by Ryanair – ruled out, after a third attempt, by the European Commission two years ago – was that competition would weaken. If IAG bids for Aer Lingus, a key issue will be its plans to develop routes out of Ireland and compete with Ryanair and other carriers.
If you are attached to the Aer Lingus shamrock, you can expect it to remain. IAG would be likely to add Aer Lingus as a fourth brand to its existing three airlines, and any other likely purchaser would also keep the green and white livery and the goodwill attached to it. But let’s not pretend we are in full control of the future of what was once the “national carrier”. It is now an airline with a “for sale” sign hanging on its nose.