O'Leary set to swoop on Aer Lingus

TWO YEARS on and the mood music from the Government on a Ryanair takeover of Aer Lingus has completely changed.

On October 5th, 2006, barely an hour had passed after the announcement of Ryanair's bid before Brian Cowen and Martin Cullen issued a joint statement opposing the deal.

This time, Minister for Finance Brian Lenihan says the offer needs to be "considered carefully" and Minister for Transport Noel Dempsey is "neutral" on the proposed deal until such time as he sees the full offer document.

Dempsey even met Michael O'Leary this week as a "courtesy". This must be of some concern to Aer Lingus's board if it truly is determined to remain independent.

Maybe it is to do with the parlous state of the public finances or maybe the Government has changed its mind on the merger.

Or perhaps it is fed up holding a 25 per cent share in an airline over which it has no influence.

For his part, O'Leary has dispensed with the "circus" act and sought to engage with "all stakeholders".

O'Leary has always insisted that the European Commission's decision to block the merger in 2006 was politically motivated. This time round, he appears determined to play the political game to get the deal across the line.

O'Leary's plan for Aer Lingus would see it set up bases in frontline airports in the UK and Europe and take on easyJet, which prefers to use these airports. He's offering to create 1,000 jobs and guarantee the Heathrow slots.

Persuading the trade unions and Aer Lingus's board of directors will be a different matter. Then again, Aer Lingus's new chairman, Colm Barrington, is a self-confessed admirer of the Ryanair model and O'Leary is offering a spot on the Ryanair board for him.

And the unions have found over the past two years that it is impossible to prevent the erosion of their terms and conditions at Aer Lingus, which continues to edge closer to the Ryanair model.

Aer Lingus's best defence would be to find a white knight. These will be thin on the ground. British Airways is eyeing Iberia and Qantas, and Lufthansa's focus is on Austrian Airlines and BMI in Britain. Air France-KLM is probably more interested in Alitalia and its recent deal with Delta-Northwest on transatlantic flights out of Heathrow would seem to lessen its need to gain Aer Lingus's slots at the London airport. Besides, Ryanair's 29.8 per cent stake is sufficient to block any other bid.

There seems little doubt that O'Leary will have to up his €1.40-a-share offer if he wants to land Aer Lingus. Forget the share price premium. With Aer Lingus having the guts of €800 million in cash, valuable Heathrow slots and other assets, Ryanair's €748 million bid would see it pick up its rival for free.

But that is for another day. O'Leary's first task is to persuade the Government that a merger of the airlines would be good for Ireland Inc and would not be negative for consumers flying from Dublin.

Boylesports is offering odds of 2\1 on the deal going through. It might just be worth a flutter.