Future of Aer Lingus still up in the air

It increasingly looks as if it won’t be a case of third time lucky for Michael O’Leary in his attempts to take over Aer Lingus after the Government decided yesterday that it won’t sell its 25 per cent stake to Ryanair.

The final decision lies with the European Commission’s competition arm.

However, the cold reality for Ryanair is that the Government’s decision that such a takeover would be negative for consumers and bad for Ireland’s competitiveness is likely to carry a lot of weight with competition commissioner Joaquín Almunia.

It was always a long shot. Let’s not forget that two previous offers by Ryanair failed to fly in the past six years.

Aer Lingus and Ryanair control north of 80 per cent of routes into and out of Ireland and they dominate connections to key cities like London, Frankfurt and Paris.

It is true that intra-country mergers have been permitted by the commission, notably in the UK with British Airway’s recent takeover of BMI.

But unlike most European markets, Ireland has no rail connections to the rest of Europe.

You either fly or take a boat and passenger ferry connections are limited.

BMI was also a basket case financially. By contrast, Aer Lingus is profitable, after significant restructuring in recent years, and has €991 million in cash on its balance sheet.

O’Leary argues that Aer Lingus has no future as an independent airline given its size and the volatility of the aviation market.

He might be right but Abu Dhabi-based Etihad Airways offers a viable alternative to a Ryanair takeover.

Having decided that it won’t sell to Ryanair, the Government now has to decide when and how to sell its stake in Aer Lingus.

Its stake was worth €144 million yesterday but there’s nothing to say that the €1.08 share price won’t soften now that a potential sale to Ryanair is off the table.

Etihad will be an interested onlooker. It already owns just under 3 per cent of Aer Lingus and has been making eyes at the Government for some time in relation to its stake.

When the “right” time to sell will be remains to be seen. The European Commission is expected to make its determination on Ryanair’s bid in February.

If it allows O’Leary to take a majority stake in Aer Lingus, you won’t see Etihad or anyone else for dust.

If the answer is no, there is then the question of what happens to Ryanair’s stake.

While Ryanair appears to be running out of runway in its attempt to take over its Irish rival, it’s still far from clear where Aer Lingus is ultimately heading.