By Business Editor David Murphy
For somebody who is so well versed in public relations and politics – Willie Walsh has been surprisingly inept in his handling of his bid for Aer Lingus.
Mr Walsh’s appeasement statement this week attempted to stem the rising tide of defiance to a takeover. In fairness, he made three significant concessions: the Heathrow slots can’t be sold, the slots will be used for flights to Ireland for five years, and the Aer Lingus name and head office location can’t be changed.
Despite the conciliation attempt his controversial proposed offer for the Irish airline continues to meet stiff resistance from opposition parties, trade unions and Government backbenchers.
Mr Walsh rightly says the new legal binding protections he is offering give the Government an important role which it does not have today.
But conspicuous by their absence from his statement were commitments to maintain current levels of employment. There are overlaps between British Airways and Aer Lingus in areas such as procurement and IT. It is a harsh fact of business that most mergers achieve higher profits by cutting staff numbers.
Some analysts anticipate an Aer Lingus takeover would result in some job losses. But it is clear from Willie Walsh’s statement that the plan is to grow Aer Lingus – so the short term staff cuts need to be weighed against longer term potential benefits which could result in more jobs and increased traffic to Ireland.
Mr Walsh’s commitments address many of the concerns that have been raised about a deal. But political sources do not believe the Government will agree to sell its 25% stake.
Some Ministers were surprised they were bounced into defending their reasons for considering a deal. Mr Walsh left the coalition exposed due to his failure to personally advocate in the media what he had proposed on paper. This is a takeover battle which will be lost or won in the theatre of public opinion.
The coalition has made a promise to itself to have an accident-free 2015 after the Irish Water calamity last year. Ministers can’t see any political mileage in signing up for a takeover which is strenuously opposed by their own backbenchers and could result in jobs losses.
But there are strong arguments in favour of a sale. While it is healthy now, Aer Lingus was close to collapse after the 9/11 attacks. High oil prices, terrorism or another recession could easily push it close to the brink again. Where that to happen in future years, the airline could be bounced into receivership and all the company’s assets would be put on the market.
The State may be prohibited from a rescue by EU State Aid rules and Aer Lingus has no other strong shareholder who could rescue it since Ryanair is blocked from increasing its stake on competition grounds.
There is also a continuing trend of consolidation in the airline industry. Ryanair CEO Michael O’Leary has argued the Aer Lingus has no future as a small independent player. If the prevailing wisdom of the Government’s advisors is to sell the State’s stake it may make sense to do so now from a position of strength.
The Cabinet is facing an election in spring of next year at the latest. While there may be good arguments to accept Mr Walsh’s offer commercially, there are few reasons to sell off the stake politically.
If the Government does not sell it leaves possibility of IAG trying to acquire a controlling stake of over 50% in Aer Lingus instead of purchasing the entire company.
This looks messy. Not only would the State remain a shareholder, the Irish Airline Pilots Association which owns 7% of the airline opposes IAG’s offer and is unlikely to sell its shares.
IAG has said repeatedly its offer is for 100% of the company. It has given no indication it would be prepared to settle for anything less. Aer Lingus has €400m on its balance sheet and without full control IAG cannot access that cash.
It would appear the Government will be able to decide whether a takeover of Aer Lingus ever leaves the runway. Willie Walsh has his work cut out.
Follow David Murphy on Twitter @davidmurphyRTE