IAG and Government ‘close’ to deal on Aer Lingus

International Airlines Group and the Irish government are trying to hammer out a compromise over the fate of Aer Lingus's valuable take-off and landing slots at Heathrow airport — the biggest barrier to IAG's planned takeover of the Irish carrier.

Dublin has demanded that IAG extend its guarantee to keep Aer Lingus's 23 pairs of Heathrow slots focused on Irish routes from five years to as many as 10. Willie Walsh, IAG chief executive, told a parliamentary committee last month that he would not go beyond five years.

However, people familiar with the deal — IAG has made a € 1.4bn bid for Aer Lingus — said the UK-based company and the Irish government are closer to agreement than they have ever been.

The real sticking point is whether Mr Walsh and the Irish government will compromise on the Heathrow slots guarantee.

IAG has made clear that any extension of its five-year guarantee for keeping the Aer Lingus slots on Irish routes would have to be commercially sound. This would require significant concessions which Dublin may not be able to deliver.

Among the areas likely to be under discussion are a cap on Irish airports’ landing charges for the period of the Heathrow slots guarantee. This would limit IAG’s risk on costs, according to analysts.

However, it could be difficult for the government to commit to a cap on charges because they are set by an independent regulator. Ireland's Commission for Aviation Regulation last October set charges for the period 2015 to 2019, stipulating that they should fall by 4.2 per cent each year.

Another area likely to be under discussion is the risk of IAG being committed to flying into certain Irish airports from Heathrow in circumstances where rivals slash fares and render Aer Lingus’s flights unprofitable.

While political momentum is swinging in favour of the deal, the government needs to extract maximum concessions from IAG, given that it faces a general election in the next 12 months.

Paschal Donohoe, transport minister, said last month that if the government was to consider IAG's offer it would need assurances on employment and the prospects for growth in transatlantic traffic.

It also wanted confirmation of an oversight mechanism for IAG’s guarantee about keeping Aer Lingus’s Heathrow slots on Irish routes.

IAG has said its preliminary offer for Aer Lingus is conditional on irrevocable commitments from the Irish government, which has a 25.1 per cent stake in the Dublin-based carrier, and Ryanair, which owns close to 30 per cent.

The takeover of Aer Lingus has aroused a good deal of political opposition. Criticism of the deal has been especially strong among members of the Labour party, the junior party in the Irish coalition government.

However, many industry and business groups support the deal, as does the Aer Lingus board. This support has countered a lot of the political opposition and senior members of Fine Gael — the senior party in the Irish government — are said to be in favour of the deal if both sides can agree one.

(Copyright The Financial Times Limited)