Is there less turbulence ahead for Aer Lingus?
Ryanair is clinging onto its 29.8 per cent and strikes loom at Aer Arann, but the pensions row is in hand, and passenger numbers are up
Christoph Mueller, chief executive officer of Aer Lingus Group, has plenty to bve cheerful about. Photograph: Aidan Crawley/Bloomberg
Much of the news from Aer Lingus appears to be good these days. Shortly after its chief executive, Christoph Mueller, unveiled a new strategy with a renewed focus on long-haul, passenger figures gave an early indication that this could pay off while the company’s interim figures show it is heading for profit this year.
But there is still plenty of scope for turbulence ahead, beginning with what is likely to be the latest chapter in the story of its fraught relationship with its chief rival: Ryanair is hanging doggedly on to its 29.8 per cent stake in the company after regulators shot down its third bid to buy it outright.
The UK Competition Commission is expected to demand that Ryanair sell the stake within the next three weeks. The watchdog spent 11 months investigating the impact the holding has on rivalry between the two on routes between Ireland and Britain and concluded that it commercially weakened Aer Lingus and could put others off bidding for the airline.
Donal O’Neill, aviation analyst with Goodbody, Aer Lingus’s broker, suggests this could trigger the sale of the State’s 25 per cent stake. The Minister for Public Expenditure, Brendan Howlin, said last year that the Government would do this under the right circumstances. Realistically, it is predicated on Ryanair exiting the shareholders’ register.
O’Neill says the most likely purchaser is Etihad, which has a relationship with Aer Lingus and already owns 3 per cent of the Irish carrier. Its chief executive, outspoken Australian James Hogan, has signalled several times that he would like to increase this holding.
“Etihad would love to take the Government’s stake,” O’Neill says. “It would take them up to 28 per cent, which is similar to what they have in Air Berlin and Air Seychelles.”
However, the middle eastern player is unlikely to do this while Ryanair holds onto its shares.
And Ryanair intends doing just that. Chief executive Michael O’Leary told analysts last month his company would appeal any ruling to sell its Aer Lingus stake to “every hill, ditch, mountains, stream and God knows wherever else, until we get to the European Court of Human Rights”.
Given that his company generally makes good on its threats to litigate, it could take years before it has exhausted all avenues. As a result, Aer Lingus has to proceed for the moment on the basis that Ryanair remains a shareholder.
David Holohan of Merrion Capital points out that Aer Lingus has managed to live with its rival’s 29.8 per cent stake for over six years. During that time it has moved from a point where profitability was under pressure to one where it is beginning to grow.
“I don’t think it will make a huge difference,” he says of the likelihood that the situation will remain unchanged for the time being.
End to pensions row
O’Leary has recently taken to calling Aer Lingus a “pension deficit with wings”. He’s being colourful rather than accurate, but he is also pointing to something the market believes is potentially good news for the airline and its share price: proposals to end a long drawn out row over a shortfall in its workers’ pension pot.