O'Leary threat to clip airline's wings is probably bluff as growth is in his DNA

ANALYSIS:Ryanair boss says if Boeing won't cut prices, he will scrap expansion plan and pay dividend instead. Standing still is not his style, however

AS ONE analyst remarked yesterday, if Ryanair were a private company they’d be breaking out the champagne at the thought of making a profit of €200-300 million in the current financial year.

Most airlines are losing money hand over fist – Aer Lingus and British Airways are good examples – and they’re the lucky ones. Several have already gone to the wall as the global economic meltdown has trampled consumer demand.

Instead, Ryanair chief executive Michael O’Leary was doing his best to dampen expectations on the release of half-year results yesterday. He was busily telling the market that Ryanair would lose about €150 million in the six months to the end of March 2010.

And it could ditch its growth strategy post-2012 if Boeing doesn’t play ball and agree another cut-price deal on aircraft by the end of this year.

Under that scenario, Ryanair would break with tradition and distribute its surplus cash to shareholders.

Is he serious or is this just another game of chicken with the US-based aircraft manufacturer? O’Leary is a past master at playing hard ball with suppliers. He wants to buy another 200 aircraft for delivery between 2013 and 2016.

At list price, these aircraft would have a value of $14 billion. O’Leary won’t pay anything like that for the planes.

But even a 50 per cent discount would leave him with a chunky bill of $7 billion for aircraft that will have a lifespan of 15 to 20 years.

Shortly after 9/11, O’Leary placed a big order with Boeing for new aircraft in what he liked to bill as the deal of the century. He topped it up in 2005 and, while he has never revealed the prices he is paying for the Boeing planes, O’Leary hasn’t been shy about gloating about the discounts he received.

In the past, O’Leary has threatened to defect to European rival Airbus to drive a hard bargain with Boeing. That avenue appears to have been closed off with Airbus recently letting it be known that it was not prepared to sell aircraft to Ryanair at the cut prices O’Leary wanted.

So he is now threatening to pull back on its growth plans post-2012 if Boeing doesn’t agree a deal by the end of this year, and concentrate instead on returning surplus cash to shareholders.

This surplus would be substantial – up to €800 million a year, according to some analysts. O’Leary owns about 4 per cent of Ryanair and would be one of the biggest beneficiaries of a dividend windfall for shareholders.

Ryanair has never paid a dividend. Its attraction in the past to investors has always been the potential for growth in the share price. This potential has been knocked over the past couple of years as a number of external shocks have battered the industry. In that environment, why shouldn’t shareholders be rewarded by a dividend payment, given the airline is profitable?

Few believe O’Leary will actually take this route. It’s not in Ryanair’s DNA to simply stand still and count the cash. Its business model is built around aggressive growth.

Don’t expect that to change anytime soon.