There is much to admire in Michael O’Leary’s terrier-like qualities. But, with his third bid for Aer Lingus in six years, is he just banging his head against a brick wall?
There is a poisonous rivalry between the Irish flag carrier and Mr O’Leary’s Ryanair. But his first takeover bid in 2006 was scuppered not by Aer Lingus’s unwillingness to be swallowed by its more successful competitor, but by Europe’s competition authorities. The second was foiled by the Irish government – which owns a quarter of Aer Lingus – sniffily dismissing the price offered.
So why does Mr O’Leary think it’s worth another try?
He is certainly offering a persuasive price. Ryanair’s offer of €1.30 per share in cash is nearly 40 per cent higher than Aer Lingus’ pre-offer share price, and values the airline significantly above its peers. And while Aer Lingus is certainly no longer the basket case it used to be – it made a small pre-tax profit last year – its shareholders might well be grateful that Ryanair would also take on some particularly nasty pension liabilities.
For Ryanair shareholders, a purchase would be a useful way to deploy the airline’s available cash, and there is no doubt that Aer Lingus would benefit financially from Mr O’Leary’s famous, if not notorious, cost-cutting skills. Meanwhile the government could sell its 25 per cent stake – a requirement of the country’s bailout.
But it is also possible that Mr O’Leary is playing a more cunning game. The UK Competition Commission is looking into whether Ryanair’s current 29.9 per cent stake in Aer Lingus is anti-competitive. The bid could, at the very least, delay a decision – and thus a possible forced sale of the stake in what are far from ideal market conditions.
Alternatively Mr O’Leary may be trying to flush out an alternative bidder for Aer Lingus, which would allow Ryanair to exit gracefully (albeit still probably at a large loss). This seems less likely, in that prospective buyers, such as the Abu Dhabi-based airline Etihad, which already owns 3 per cent of Aer Lingus, may well be stymied by restrictions on foreign ownership.
These very restrictions, though, highlight how old-fashioned the rules governing airline takeovers are. Mr O’Leary argues that the world has changed since he last bid for Aer Lingus – and he has a point. For never has the need for airline consolidation been greater. This month the International Air Transport Association forecast that European airlines would report a combined net loss of $1.1bn this year, one of several years of losses in the past decade. Even the strongest, such as International Airlines Group, parent of British Airways and Iberia, are only expecting to break even. Yet barely any airline has gone under, or merged with a rival.
For Ireland to have two large airlines has always seemed anomalous. This is one brick wall that deserves to be knocked down.