In a conference call with shareholders, Ryanair executives tried to convince them of the benefits of the €1.4 billion Aer Lingus bid, writes Emmet Oliver

It is set to become one of the more celebrated investors' conference calls of the business year. Last Thursday, analysts and investors dialled a special line to talk to Ryanair executives, among them chief executive Michael O'Leary and deputy chief executive Howard Millar, about its €1.4 billion bid for Aer Lingus. According to some reports, US investors were "spooked" by the bid, while European investors were also highly sceptical.

An annotated transcript of the conference call suggests there was a mixture of reactions. In the end, Mr O'Leary dealt with any scepticism by saying "our shareholders have to back our judgement here too".

Those participating in the call started by asking why Ryanair would want any exposure to long-haul travel. Mr O'Leary replied: "The answer to the first one, why are we going into the long-haul business? I know this is going to be a bit strange, but we are not.

"We have no intention of going into the long-haul business. Ryanair is going to continue to execute Ryanair's plan, which is to double its flights in the European short-haul market over the next five years. However, there is an opportunity to invest in an airline in the same local market here, which we know well, which does have a high cost base. It is profitable even with that high cost base and we suspect that by applying some of the Ryanair formula and the Ryanair efficiency and the Ryanair purchasing power, we could significantly boost their profitability and earn a superior return for our shareholders by doing so."

Ryanair told the investors and analysts that none of this was going "to alter or divert" the execution of Ryanair's old business strategy.

Based on questions and answers about what this means for Dublin airport, the Dublin Airport Authority (DAA) may have good reason to be nervous.

The Ryanair executives said the DAA was planning an expansion and a new terminal, but up to now this was earmarked exclusively for Aer Lingus, and if it was dealing with "a Ryanair plus Aer Lingus group, that would be a very different scenario".

They added: "If we were speaking on behalf of both major airlines at the airport, I think it would change the situation quite dramatically."

Some investors raised the issue of Ryanair becoming "polluted" by big airline thinking. But Mr O'Leary said this would not happen and voiced rare admiration for Aer Lingus.

"Accept my assurance we are not going to become polluted with big airline thinking. I think what we are going to do will be probably polluting this small airline with some much more aggressive small-airline thinking.

"I think if we had a majority control of Aer Lingus, our intervention over the medium term would be: here are six or seven issues which we would like management to address that would significantly reduce cost."

He continued: "It would take maybe a couple of meetings to assist them with aircraft acquisition. After that, you know, they have a pretty competent management team. It has changed in the last year or two, but fundamentally the management team has taken it from near bankruptcy four years ago to €90 million operating profit, about 6-7 per cent operating margin at the moment. It is about the next best airline in Europe in operating profit terms to Ryanair."

Investors wanted to know about plans for the Aer Lingus headquarters.

Ryanair replied: "We clearly said in statement on the website, we see the combined operation reducing operating costs, increasing efficiency and that would clearly include significant savings on overheads, particularly here in Dublin airport. One of the opportunities for Ryanair is that Aer Lingus would have a significant number of - er, the amount of space and buildings that it owns under long-term low-cost leases here at Dublin airport."

The Ryanair team said it clearly wouldn't want a lot of those facilities, which come to about 16 acres of ground.

"There would be opportunities in the combined operation to develop those, but Aer Lingus has already announced some plans to develop those. We are not party to those kind of plans, but there are lots of opportunities there. It is not a one-way thing."

As to the acceptances needed to make the deal happen, Ryanair said 90 per cent would be needed, although it would be happy with more than 50 per cent.

"Yes, that is a technical thing which you have to have in there, because under Irish corporate laws if you get to more than 90 per cent acceptance, then you can compel the remaining less-than-10 per cent to sell to you. You can see probably if we get 90 per cent it is no more than a reference to that, but it is a moot point that the Irish Government decided they are going to retain their 25 per cent stake; we would be happy with anything over 50.1 per cent, which would give us a significant input in the business of Aer Lingus and the way they execute their business strategy."

Some investors said they found the timing of the offer very odd. Ryanair said: "We respect that view. What we would say in relation to the timing is as follows. It floated last week. There was clearly going to be an opportunity immediately following a float to pick up a large chunk of stock in the airline at what we believe was fair value. However, we will continue to double in size to get the 80 million passengers in Europe anyway in the next five years, that's simply going to happen. We were not going to be distracted at first from the execution of that plan, and nor are we going to go and manage Aer Lingus, if you like."

But its executives told the investors there was a clear rationale for the offer.

"There is an opportunity there. By applying the Ryanair formula to the Aer Lingus business model, we think over time there will be a chance to earn an enhanced return for our shareholders."

The Ryanair executives said their aim was to assist the Aer Lingus executives around the "edges".

Asked to define this, the Ryanair team described this as giving "direction" rather than intervening. The Ryanair executives ended by saying the deal would help to earn a superior return for shareholders and was much better than putting money on deposit.