Aer Lingus value soared by 50% after purchase by IAG

Aer Lingus was worth €2.2 billion at the end of 2016, almost 50 per cent more than the sum paid for the Irish carrier by International Airlines' Group (IAG) 16 months earlier, industry analysts say.

IAG bought Aer Lingus for €1.5 billion in September 2015 following a protracted process that involved getting the Dáil’s approval for the sale of the State’s 29.7 per cent holding in the airline.

In a note on its parent group, Rishika Savjani and Mark McVicar, aviation analysts with British bank Barclays, calculate that Aer Lingus had an enterprise value of €2.195 billion at the end of 2016.

According to this estimate, at the end of last year Aer Lingus was worth 46 per cent more than the €1.5 billion that IAG paid for the company when it finally took it over in early September 2015.

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IAG paid Aer Lingus investors €2.50 a share plus a 5 cent dividend when it closed the deal. Before news of the group’s initial approach to the Irish airline’s board broke in December 2014, Aer Lingus shares were trading at around the €1.50 mark, valuing it at around €900 million.

IAG also owns British Airways and Spain's Iberia, Vueling and Level. After it bought Aer Lingus, the Irish airline grew its fleet of long-haul aircraft to 14 in 2016 from 11 the previous year, and expanded the number of planes used for shorter journeys to 38 from 37.

New US destinations

In 2016, the airline also began flying to three new US destinations from Dublin Airport – LA, Newark New Jersey and Hartford Connecticut – and expanded the number of seats on its transatlantic network by 17 per cent.

Ms Savjani and Mr McVicar argue that IAG's purchase of Aer Lingus benefitted both. They point out that competing with Ryanair at Dublin Airport forced Aer Lingus to drive productivity, and suggest that its parent could apply some of those competitive advantages across the group.

“Meanwhile, the Dublin hub should help IAG group capture a greater share of connecting Europe-North American traffic, particularly from the UK regions, while BA continues to prioritise point-to-point traffic at Heathrow,” the analysts say.

Aer Lingus began flying from Dublin to Miami this year. In 2018, it plans services to Philadelphia and Seattle. Over the next three years, it will also acquire five new Airbus A321 long-range craft with the backing of its parent, giving it options to add further services in the US and Canada.

Neither Aer Lingus nor IAG would comment on the analysts’ conclusions on Thursday.