Some deals are just too obvious…

The board of Aer Lingus has rejected two takeover bids from IAG and the rumour is that the owner of British Airways and Iberia is preparing a third attempt.

Aer Lingus has staged a remarkable recovery over the last few years. They were in dire trouble even before the Irish financial crisis. The successful turn-around of the airline in these circumstances is a major achievement. Unfortunately, the end-result is probably not quite strong enough to survive by itself much longer. There is the question of Ryanair’s shareholding which might be resolved by a Court hearing and, even if this is sorted out, the Irish state surely does not want any involvement in the airline. A new owner is needed and the airline also needs a strong airline partner. It has done very well to develop its routes to the US and keep its European network together but, by itself, it can only go so far.

IAG would give Aer Lingus access to the the group’s powerful joint agreement with American Airlines which would surely be a huge boost to their transatlantic flights. It would also give them two hubs (Heathrow and Madrid) to funnel traffic through to other destinations in Europe and around the world.

Of course, a link with Air France/KLM or with Lufthansa could achieve much the same – but Air France/KLM are struggling to stay in business themselves and Lufthansa certainly do not have any appetite for further acquisition. A link with a non-EU carrier such as Etiahd (who already own a small percentage) would not achieve very much.

The deal would also be good for IAG providing it with further ammunition for the Atlantic and more traffic into and out of its hubs. However, it is not the type of deal that is worth over-paying for – and IAG are very cautious with money at the best of times.

Other than the sticking point of Ryanair and its shareholding, there is an emotional hang-up which could wreck the deal. Selling Aer Lingus to a British company would be unthinkable, selling it to IAG will still be seen by some as almost as bad.

If IAG walk away, the future will be very difficult for a solitary Aer Lingus and it is hard to see any other credible bidder, who could actually add to the airline, coming along.

This is a deal that makes so much sense to all concerned. Yet I have a feeling the Irish will allow emotion to cloud the issue. 

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