Aviation:Although it survived Ryanair's hostile takeover bid, Aer Lingus cannot afford to sit back, but it should brace itself for a long war, writes Emmet Oliver

So as the year comes to an end, operation bargepole has failed to meet its first objective - getting majority control of the enemy target.

Ryanair's €1.4 billion bid for Aer Lingus, dubbed "operation bargepole" by senior executives, has not met with success. Such a blunt assessment is possible because Ryanair chief executive Michael O'Leary said himself the primary objective of the bid was to get majority control, which he defined as anything over 50 per cent.

On those narrow grounds O'Leary and his board have failed, but while Ryanair may have lost the battle, the low-cost airline will take solace from the thought that the war is still winnable. Ryanair has a 25 per cent share in Aer Lingus, making its stake almost as large as that of the Government.

Far from retreating to lick his wounds in 2007, O'Leary has warned that another bid will be mounted - if the EU Commission approves the deal after a phase two investigation. The EU is conducting that investigation over the next 90 working days.

O'Leary's determination to corner his quarry is illustrated by Ryanair's various submissions to the European Commission during the first phase of its investigation. According to reports from Brussels, Ryanair has offered to sell lucrative slots at airports like Stansted and Heathrow in an attempt to allay EU competition concerns and get its hands on Aer Lingus.

Many overseas commentators are a little perplexed about why Ryanair is going to such lengths to acquire what is, as O'Leary himself often points out, "a small regional airline".

Investor conference calls have often contained comments from analysts about why Ryanair wants to go down the Aer Lingus acquisition route at all.

Ryanair has little tradition of expanding via acquisition. Its purchase three years ago of loss-making airline Buzz for a paltry £15.1 million was an exception to the rule. In fact, Ryanair management does not have a great deal of experience in acquisitions, although many of its advisers do.

At times this lack of experience has shown. For example Ryanair's decision to opt for a total honesty policy in relation to cost-cutting at Aer Lingus managed to alienate the key employee share ownership trust (esot) group which holds a 12.5 per cent stake.

Ryanair refused to deny reports that it would sack 1,000 Aer Lingus staff following the takeover. As a result, a vacuum developed whereby even more alarming figures of more than 1,000 job losses started to circulate among staff. It was predicable that several weeks later the esot voted overwhelmingly against the takeover by a large margin.

While Ryanair deputy chief executive Michael Cawley reasonably said the airline was not going to "sugar the pill" for optical reasons, the aggressive commentary on costs alienated a key shareholder at a crucial time.

While Ryanair won few shareholder friends, its audacious bid has put huge pressure on Aer Lingus management, most of them running their first publicly quoted company.

The share price of the airline has stagnated since it was driven up to €2.80 and beyond in the wake of Ryanair's offer.

For the last few weeks it has hovered around €2.70 to €2.80, valuing the carrier at more than €1.4 billion. The problem for Aer Lingus managing director Dermot Mannion is to get the share price above €3 and beyond, making any further Ryanair bid costly.

If Aer Lingus was valued at €3.20, for instance, Ryanair would have to bid a significant portion of its cash reserves and a premium too.

It's not as if Ryanair has an entirely free hand with the cash funds on its balance sheet. Shareholders, for so long deprived of dividends, are desperate to see some money returned to them via a special dividend or share buy-back scheme. For most shareholders in the US, this would rank as a much higher priority than a takeover of a hybrid airline with just 34 aircraft.

There are few strategic opportunities for Mannion and co to push the share price forward.

Obvious routes to share price growth look unobtainable in 2007. A new EU-US open skies deal, the key to exploiting the US market, is close to collapse, while long-haul growth is likely to be frustrated by a lack of aircraft. Both Airbus and Boeing have huge orders books, so it could be several years before the much-vaunted Aer Lingus long-haul growth plan gets off the ground.

Despite this, the executives at Aer Lingus will feel pleased that the flotation took place at all. On the political drawing board since the late 1990s, the idea was once politically toxic, but now few observers mention what a monumental achievement it was to float the airline in the first place. The decision to float at €2.20, however, took some of the sheen off this achievement with many accusing Government and the airline of selling it too cheaply.

What this all means is that Aer Lingus management may have survived first contact with the enemy, but it should take little comfort from the current position.

It is going to be long war.