Ireland open to new Ryanair bid for Aer Lingus

DUBLIN – The Irish government is keeping an open mind on Ryanair's surprise new takeover bid for the national airline Aer Lingus but won't be "shoved into a fire sale" because of the country's debt difficulties, Prime Minister Enda Kenny said Wednesday.

Ryanair offered €1.30 ($1.65) per share for its main Irish rival Tuesday night, its third bid since Aer Lingus' 2006 flotation. Aer Lingus shares jumped 15 percent Wednesday to close at €1.09 on the Irish Stock Exchange. Ryanair is Aer Lingus' biggest shareholder with a nearly 30 percent stake, the government second with 25 percent.

European Union competition authorities in 2007 ruled that a Ryanair-Aer Lingus merger would create an airline monopoly in Dublin, and Aer Lingus is continuing legal action in Britain against Ryanair in hopes of forcing it to dump its stake.

But Kenny, who became Ireland's leader last year after the country was forced to negotiate a €67.5 billion ($86 billion) international bailout, notably did not rule out a sale to Ryanair, Ireland's most dynamic and successful business with surging cash reserves of €2.7 billion ($3.4 billion). And he noted that the government's 25 percent stake no longer represents a blocking interest on any sale. During previous bids, an Aer Lingus employee trust also opposed Ryanair, but that trust was broken up in 2010.

"The government will give consideration to this bid. ... We don't have any veto over this," Kenny told opposition lawmakers, who appealed to him to rule out any deal with Ryanair.

Ireland is committed under terms of its European Union-International Monetary Fund loan deal to sell potentially €2 billion in state assets, including power plants, to drive its deficits back below EU limits by 2016. Ryanair's offer values Aer Lingus at nearly €694 million, meaning the government would gain €173.5 million.

Kenny said his government would sell its Aer Lingus holding only if sufficient competition on routes, fares and customer service could be safeguarded. "We're not going to get shoved into a fire sale here," he said.

Aer Lingus advised its non-Ryanair shareholders Wednesday to take no action if they received an offer in the mail. In a statement the airline said Ryanair's offer was too low. It noted that EU regulators rejected Ryanair's first bid in 2007, while Ryanair abandoned its second bid in 2008 after too few shareholders took up the offer. "Consequently there is significant uncertainty that any offer from Ryanair, if made, would be capable of completion," it said.

Aer Lingus has struggled in recent years to slash costs sufficiently to compete with Ryanair, which is Europe's fastest-growing airline. It has suffered regular battles with labor unions, whereas Ryanair doesn't recognize them. But it did post a modest profit last year and has been expanding its own European short-haul network.

Ryanair chief executive Michael O'Leary argues that the government must sell Aer Lingus because it needs the cash, and would be far better off selling to another Irish company. The other potential suitor, Etihad Airways of the United Arab Emirates, this year bought a 3 percent stake in Aer Lingus and has expressed interest in the government holding.

Ryanair already has stressed that, should another airline buy the government's shares, Ryanair would happily negotiate a sale of its own holding to the winning airline.

Shane Ross, an independent lawmaker and investment guru, urged the government to rule out selling to Ryanair because it would make O'Leary's airline too powerful in Ireland.

"This deal has the potential to convert Ryanair from being an aggressive, lean, mean, independent, challenging airline into a mega-gamekeeper in terms of Irish airlines. And I think it would be very dangerous," Ross told a parliamentary debate on the issue.

Trade union and tourism leaders likewise called for Aer Lingus to remain independent of Ryanair. Michael Vaughan, president of the Irish Hotels Federation, said he feared Ryanair would sell off Aer Lingus' slots at Heathrow, the only major London airport that Ryanair doesn't currently use. They are Aer Lingus' most valuable asset because airlines covet slots at Heathrow, one of Europe's biggest hubs.

"Ultimately, what we need is more entrants into the Irish aviation space, not consolidation among the two major airlines," Vaughan said.

Travel industry analyst Simon Calder said that wasn't necessarily true, because airlines across Europe have been merging into fewer, more powerful groups to survive recession and higher oil prices.

Calder said Ireland's argument over whether to keep two airlines "is a problem that most small European countries would love to have. Most have either one or no international airlines."

"The basic problem here is market domination," Calder said, noting that there's comparatively less competition already on Irish air routes versus their British counterparts. "Other airlines should be able to keep Ryanair honest. But the larger a market share that a single airline has, the more it can control fares."

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Online:

Aer Lingus, http://bit.ly/Li9EGR

Ryanair, http://bit.ly/khcsQ5