Ryanair’s bid for Aer Lingus horrifies Irish Government

In a move to combine two major airlines of Ireland for adding routes to US and increase overall passenger numbers, Ryanair, an Irish airline headquartered in Dublin on Thursday launched a 1.48-billion euros ($1.88 billion) bid for another Dublin based airline, Aer Lingus.

Europe's largest discount airline, Ryanair’s CEO Michael O'Leary said his company had bought more than 16% of the formerly state-owned carrier, Aer Lingus shares over the past week and was intended to acquire the remainder.

Ryanair now has acquired a 19.2% stake in Aer Lingus and offered 2.8 euros a share in cash for the rest of the airline, 12% more than latter’s Wednesday's closing price in Dublin and 27% above its flotation price of 2.2 euros.

If the deal gets thumbs up, it would come out with more than 220 million euros in profit for an Aer Lingus employee share-ownership trust, or more than 60,000 euros per employee, Ryanair presumes. "It makes sense to combine the two Irish airlines so that we can compete with the likes of British Airways, Lufthansa and Air France," O'Leary said adding further, "We can boost Aer Lingus' growth and profits and produce a better return."

The two carriers would continue to be operated separately and would have separate brands even after the deal matures, he said. In spite of this, both can compete energetically in the small number of routes on which both operates. Of nearly 500 routes only 17 are operated by these two airlines.

O'Leary said Ryanair would lower the fares at Aer Lingus and buy planes at cheaper price by combining orders. The enlarged group would ferry 50 million passengers a year, helping it compete with British Airways and its associates, Spanish airline Iberia, which currently have 63 million passengers.

However, Aer Lingus board and the Irish government, which has 28.3% stake in the carrier, showed their thumbs down on the bid. "The government is fully committed to competition in the aviation market and it will not be selling its shares in Aer Lingus," Irish Prime Minister Bertie Ahern said.

Furious with the move, Aer Lingus Chairman John Sharman, said, "This approach is unsolicited, wholly opportunistic and significantly undervalues the group's businesses," added that, "The offer would raise significant regulatory issues."

On Thursday, amid the speculations that Ryanair to get its majority stake will have to pay more than 2.80 euros, Aer Lingus shares closed at 2.90 euros, up 15% on the day. Although, Ryanair shares closed the day down three cent at 8.67 euros, but it was a good day all-around for the ISEQ index of Irish shares. It closed the day up 44 points at a new high of 8,298.

Today in the market, at 9:34 a.m., Aer Lingus shares were up 11.6% at 2.80 euros, while Ryanair was down 2.8 per cent at 8.47 euros.