Odds against O'Leary landing Aer Lingus

Q: Does Ryanair have any chance of ever succeeding in buying Aer Lingus?

Ryanair owns 29.8 per cent of Aer Lingus and in June launched its third takeover attempt to acquire its Irish rival at €1.30 per share.

On Tuesday, the Government, which owns 25.1 per cent of Aer Lingus, finally rejected Ryanair’s bid, citing concerns about connectivity and Ireland’s competitiveness.

What does the Government’s decision mean for Ryanair’s bid for Aer Lingus?

Ryanair will not now be able to buy 100 per cent of Aer Lingus but it does not rule out it being able to get a controlling stake in it. To do that, it will need the approval of the European Commission, which is “market testing” its takeover proposal and is expected to give its decision in February.

So why did the Coalition reject Ryanair’s bid? To address competition issues, Ryanair’s remedies package to the commission included selling 20 of Aer Lingus’s 24 slots at London Heathrow to British Airways and surrendering other routes to United Kingdom carrier Flybe.

The Government decided that this could be damaging in the long term for Ireland’s air connectivity, which in turn could affect the economy’s competitiveness. It decided that it was better to have two competing Irish airlines rather than allowing Ryanair’s Michael O’Leary control both.

Does that mean the Government will not be selling its Aer Lingus stake? No. Minister for Transport Leo Varadkar said it still intends to sell its stake when the time is right and under opportune conditions.

What are the chances of the commission allowing Ryanair to take over Aer Lingus?

The odds are firmly stacked against O’Leary fulfilling his ambition to acquire Aer Lingus. The Government’s decision is likely to carry a lot of weight with competition commissioner Joaquín Almunia. There are also significant competition hurdles to overcome, given that Ryanair and Aer Lingus dominate passenger traffic in Dublin, Cork and Shannon and the fact that few airlines are brave enough to take on O’Leary in his own back yard.

Where would that leave Aer Lingus?

O’Leary might just sit on his hands and do nothing with his Aer Lingus shareholding or he might cut his losses and sell to the highest bidder.

Separately, Ryanair could be forced to dispose of the shares as the UK competition commission is investigating whether its stake in Aer Lingus is bad for British consumers.

Abu Dhabi-based Etihad Airways owns 2.99 per cent of Aer Lingus and would like to buy the Government’s stake.

Etihad is keen to develop a deeper relationship with Aer Lingus although European Union rules prevent it from holding a majority stake.

Don’t rule out a bid by Willie Walsh’s International Airline Group.

He insists he has no interest in buying the airline he once led.

However, having tried and failed before to acquire Aer Lingus, the temptation might prove too strong to resist if the price is right.