In Depth

British Airways-owner IAG prepares to swallow Aer Lingus

Willy Walsh has shown with Iberia that he can rationalise the legacy national airlines

by Sean Flynn, Shares magazine

After managing with some success to rationalise Spanish flag carrier Iberia, British Airways-owner International Consolidated Airlines (IAG) is on the cusp of buying Irish national airline, Aer Lingus.

The Irish flag carrier offers some compelling synergies for the BA owner, not least of these the prized Heathrow slots. Other attractions include further market share on one of the busiest routes in Europe as well as access to Dublin as a developing transatlantic hub.

Willie Walsh started his career as an Aer Lingus pilot before taking over at the national carrier's helm. This should mean that IAG has a clear idea of what it is getting if this two-stage transaction goes through.

Even so, it was never going to be an easy deal to pull off. In the first place, IAG had to make the right offer financially. Secondly, because its first stake had to be bought from the Irish government (which held 25 per cent of Aer Lingus), there was much political soul-searching in Ireland on the basis of some emotive arguments about the loss of a national airline. More practically, Irish concerns about loss of connectivity needed to be addressed.

On 26 May, the Irish transport minister green-lit the €2.55 per share offer – which values the airline at €1.4 billion – once IAG had extended the life of guarantees about maintaining Ireland/Heathrow routes from five to seven years.

Thus far, the choreography of this courtship has gone to plan, but the second partner on IAG's dance card might not prove so accommodating.

Irish low-cost carrier Ryanair has had attempts to take over its compatriot stymied by competition rulings both in London and Brussels over the past couple of years, and despite its demonstrable willingness to go back to the courts to the fight these decisions, it looks like Ryanair now has little choice but to relinquish its ambitions. It has now been told by the Competition and Markets Authority to reduce its stake in Aer Lingus from 29.8% to 5%.

Ryanair has made it clear that it will give serious consideration to any offer made by IAG. That said, there are analysts out there who reckon that Ryanair could ignore tough-talking Walsh and push for a better deal for its Aer Lingus stake. Having come this far, it is unlikely that Walsh will walk away from the Aer Lingus tie-up even if it meant having to give in to his rival.

Walsh has shown time and again – in Ireland in his stint at Aer Lingus, in Spain with Iberia, and with British Airways itself – that he has the intestinal fortitude to face down organised labour, an essential prerequisite if one wishes turn around these semi-state flag-carriers.

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