BUSINESS OPINION:THE OUTLOOK for the airline industry is without a doubt pretty bleak. Just how bleak depends on your take on the price of oil, writes John McManus.

Among the big bears are US bank Goldman Sachs, who are talking about oil reaching $150 a barrel and are laying waste to their forecasts for airline stocks as a result.

It's hard to see how any airline can make money at those prices and even low-cost carriers such as Ryanair and Easyjet, with their big cash reserves, face into a very uncertain future. And one thing, among many, that will have to be revisited in this environment is the logic of the the takeover of Aer Lingus by Ryanair.

Ryanair owns 29.4 per cent of its rival having swooped on Aer Lingus in the days after its flotation in September 2006. The ensuing takeover bid ended in stalemate, frustrated by the massed ranks of the Government, which holds 25.4 per cent, the staff who own 13.3 per cent, the pilots and businessman Denis O'Brien.

This made it almost impossible for Ryanair to get control of the airline, but the coup de grace was delivered by Brussels, which shot down the proposal on competition grounds.

Despite this, Ryanair pronounced itself happy enough to remain on as big shareholder in Aer Lingus with a view to making another bid at a later stage. But it is one thing for cash-rich Ryanair to hold a big chunk of a profitable rival for strategic reasons. It will be another thing entirely to have more than €200 million tied up in a struggling rival - whose shares hit a all time low on Friday - when Ryanair itself is coming under pressure as the oil price climbs.

It is something of a case of use it or lose it when it comes to the Ryanair stake in Aer Lingus at the moment.

The question that Ryanair must almost certainly be asking itself is whether the European Commission could now be persuaded to let a takeover go through in the sort of apocalyptic scenario that some - including its chief executive Michael O'Leary - are busy painting.

Certainly, the commission would not be doing its job if it did not give any future bid from Ryanair a fresh hearing, given that so many of the fundamental economic assumptions on which its first analysis was made are now looking very questionable.

But even if Ryanair could succeed in reversing the stance of the commission, one would still not fancy the chances of a hostile bid succeeding.

However, it might not come to that. In the same way that the commission will be required to think again if even half of the doom-laden predictions for the airline industry turnout to be true, so too will the board of Aer Lingus.

As the outgoing chairman John Sharman acknowledged at the company's annual general meeting, Aer Lingus will struggle to make money as long as oil remains at $125 a barrel or more. And if this is the case then all bets are off and takeover by Ryanair may be the best of a number of unpalatable options.

Ryanair may also struggle to break even with oil at $130 a barrel, according to O'Leary, but its size, low-cost ethos and large bank balance make it much more suited to life in a $100 plus a barrel world. As O'Leary points out it will make a profit of €350 million this year at those levels.

If oil settles in the medium term at levels that really hurt Aer Lingus, but are only painful for Ryanair - which is not an impossibility - then it must be game on for a takeover recommended by the board of Aer Lingus.

Equally, the second-biggest shareholder, the Government, may also be brought round to thinking that an Aer Lingus owned by Ryanair is better than no Aer Lingus, or an Aer Lingus on life support propped up by itself and the other shareholders.

Such a change of heart would have been almost inconceivable in an administration led by Bertie Ahern, given the personal nature of the public attacks Ryanair have mounted against him over the years.

But the new Taoiseach's views on Ryanair - like many things - are not clear.

But even if the Government could be won over, one important constituency is expected to resist Ryanair's overtures to the bitter end. And that is the staff, who fear for their terms and conditions under Michael O'Leary.

Here again, all is not as it seems. Aer Lingus has just obtained agreement on a round of cost-cutting and given the current environment another one must be in the pipeline.

The simple fact is that if Aer Lingus is to survive in competition with Ryanair in the long term, it must narrow the gap between its costs and Ryanair's.

That said, O'Leary remains a bogey man for most Aer Lingus staff, but more materially they simply do not trust him, and there is little he can do to change that. He could, however, hand over to someone they could trust and that is not inconceivable either, with the Ryanair boss openly talking about moving on.

When you take all this into account, the perfect storm of which airline executives are so fond of talking about may yet create the conditions for the takeover of Aer Lingus by Ryanair.