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Willie Walsh may yet call the shots at Aer Lingus, having stepped down as CEO in 2005
By Business Editor David Murphy
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Slowly the tide is coming in – Aer Lingus seems destined to be taken over by British Airways’ parent group International Airlines Group (IAG).
It has made two offers for the Irish airline and a third seems imminent.
But what would a takeover mean for travellers to and from Ireland? And will it be a beneficial development?
IAG is run by former Aer Lingus CEO Willie Walsh. With his previous acquisitions – such as Veuling and Iberia – he has maintained the identity of the airlines he has purchased. So is seems a reasonable assumption that Aer Lingus would retain its individuality.
But a key issue is the fate Aer Lingus’ valuable slots in London’s Heathrow – these link its flights to the enormous, global connectivity offered by Britain’s busiest airport.
When the Irish airline floated on stock market in 2006 the State retained a 25% stake in the airline, partially to give it a say regarding what would happen these slots.
If there is a full acquisition of Aer Lingus by IAG it would require the State to sell its shares – otherwise the Government could block a takeover. And whether the State agrees to sell its stake would partly depend on Willie Walsh’s future plans for the Heathrow slots and his willingness to invest in routes from Dublin, Shannon and Cork.
Mr Walsh’s Irish roots and background mean he understands the importance of Aer Lingus to Ireland. But his cost cutting at Aer Lingus, which saved the airline after the aviation downturn following 9/11, shows he can be as unsentimental as any another business leader.
The Government would also need to be mindful that Willie Walsh won’t always run IAG and a future CEO may feel the Heathrow slots could generate more revenue by being used to operate flights to other countries.
That said, there is a deeper question of whether Aer Lingus’ future and whether the interests of travellers to and from Ireland are best served by a stand-alone independent airline or an Irish unit which is part of larger group.
Stephen Furlong, an analyst with Davy, says “We believe that the attraction of Aer Lingus for IAG is its strategic growth out of Dublin (now Europe’s seventh largest transatlantic hub) together with the flexibility around the enhanced Heathrow slot position while maintaining/enhancing a full Dublin London shuttle service.” There would also be synergies in maintenance, procurement and IT, he says.
This week Ryanair CEO Michael O’Leary argued that Aer Lingus “needs to find a home in one of the five large airline groups.”
One of those groups is Ryanair, which owns a 29.9% stake in Aer Lingus. Mr O’Leary’s previous three takeover attempts for Aer Lingus have been blocked on competition grounds and he may be forced to reduce its stake to 5%.
If IAG gets full control of Aer Lingus it could be asked to exit from some routes to address competition concerns.
That would offer an opportunity for Ryanair to fly to those destinations. Michael O’Leary is also likely to recoup the original Ryanair investment in Aer Lingus shares.
It may make sense for Ryanair and the State to accept the next IAG offer. However, this deal is not simply a question of being paid for shares.
Willie Walsh’s future plans for Aer Lingus and whether they will benefit the Irish economy, tourism and connectivity to the rest of the world are still unclear.
They matter most.