Aer Lingus: playing Heathrow slots involves big stakes

Aer Lingus shares surged by as much as 15 per cent on news that it had rebuffed a possible takeover approach from IAG, owner of rival British Airways and Spanish fliers, Iberia and Vueling.

The share price move indicates that the news took the markets by surprise. However, it is less unexpected for aviation industry insiders, many of whom regard Aer Lingus as a natural fit for IAG.

The Irish airline is one of the few remaining flag carriers in Europe that is not now tied into a larger group. It is profitable and it does a lot of business in Britain, where IAG is headquartered and where its largest constituent, British Airways, is based.

The two have a relationship. Aer Lingus operates 23 services to Britain where it has a deal with British Airways allowing its passengers to transfer between flights offered by the two airlines on the same ticket.

They also operate from the same terminal at British Airways’s home airport, London Heathrow, where Aer Lingus has more than 20 landing slots, which in themselves are considered valuable assets.

Regional growth

Aer Lingus has been growing its business throughout Britain, particularly at the country’s regional airports, from where it has been carrying an increasing number of passengers who fly on to the US on the Irish airline’s transatlantic services.

Two events may have sparked IAG’s approach.

The first is that Aer Lingus could be within sight of resolving a four-year-old dispute over the insolvent Irish Airlines Staff Superannuation pension scheme, which it shares with Dublin Airport Authority, and which is €750 million in the red.

A resolution would rid Aer Lingus of a complex financial problem and deal with a stubborn industrial relations problem.

The second is the possibility that most of Ryanair’s 29.8 per cent stake in Aer Lingus may soon end up on the market. The British Court of Appeal recently heard Ryanair’s latest challenge to an order from UK competition regulators to cut this to 5 per cent.

While there has been no ruling, an offer from IAG, presumably at a premium to Aer Lingus's recent price, could at this stage look more attractive to Ryanair than the prospect of further legal battles.