Ryanair chief Michael O'Leary has embarked on a concerted effort to convince his shareholders of the merits the airline's €1.48 billion takeover approach for Aer Lingus, a move which will bring Ryanair into the transatlantic market.
The surprise approach for Aer Lingus came only four days after the former State-owned airline took out a stock-market listing.
But while Mr O'Leary said he will face down Government and trade union opposition to the takeover approach, analysts in the US and London markets questioned the deal.
In a conference call for US investors yesterday, Mr O'Leary was questioned about the wisdom of the takeover approach for an airline whose cost base is significantly greater than that of Ryanair.
Investors are reported to have raised the issue of Ryanair exposing itself to the long-haul market.
They are also reported to have questioned whether such a move would have a negative impact on the airline's profit margins.
Such concerns were echoed in public comments by stock market analysts in the international investment banking community. "I think its opportunistic," said Nick van den Brul, an aviation analyst with BNP Paribas in London.
"It calls into question where Ryanair is going to go with it, and represents a change in their business model."
Deutsche Bank in London said it may be possible to justify the deal financially, but questioned why a pure-play low-cost carrier was bothering to move into the long-haul market.
The takeover approach is priced at €2.80 per Aer Lingus share, 27 per cent higher than the initial public offering (IPO) price of €2.20.
It prompted a 15.5 per cent rise in Aer Lingus shares, which closed last night at €2.90.
Ryanair shares lost more than 2 per cent yesterday morning in the hour after it told the market that it had accumulated a 16 per cent of Aer Lingus.
Further stake-building yesterday brought its stake close to 20 per cent. Ryanair shares closed the day at €8.63, 0.8 per cent weaker.
While the Dublin market was silent on the approach as a result of their interest in the IPO last week, some sources said in private that the main issue for Ryanair was the risk that a partial takeover of Aer Lingus would be a big distraction for its managment team for relatively small gains.
Doug McVitie, an analyst at US aerospace consultancy Arran Aerospace, said the bid was "purely and simply a political move to gain leverage" with the Government.
"O'Leary's not interested in finesse or Aer Lingus' business-class economics, he just wants to have more say in the future of aviation in Ireland, which starts at Dublin Airport," he said.
He said Ryanair believes the Government didn't know what it was doing at Dublin Airport, or in aviation in general, and was prepared to go to some lengths to prove it. "They're politicians, after all, not aerospace specialists, so he has a point.
"It's just his manner of getting that point across which is a little 'unconventional'."
His questioning of the approach was echoed by ABN Amro in London, which questioned whether the takeover would go ahead at all.
"We struggle to envisage a white knight emerging, unless a wealthy domestic entrepreneur steps forward. We think Ryanair is looking for speculative investment gains, publicity and political gain. It will likely gain all of these. We don't think it will gain a medium-sized airline with a shamrock on the tail," ABN said.
