An Irish happy ending

When IAG first announced their interest in buying Aer Lingus we said this was a marriage made in heaven.

Aer Lingus had done well to put itself on a sounder base and was able to ride through the Irish economic troubles relatively unscathed. However, going forward, the airline was just too small to survive on its own. Furthermore, there were not many possible saviours around.

For IAG, Aer Lingus was attractive because of its base in Dublin and established routes to the US which will allow it to funnel traffic from Europe through Dublin, as well as take Irish passengers overseas via Madrid and Heathrow.

The Irish government could rid itself of a potential liability – and get some cash as well. And the staff of the airline would have a much more secure future in an airline group that is growing.

As we said at the time, it was just too good to happen. Something was bound to get in the way. Yet, one by one, the obstacles were overcome.

The unions might not have been hugely supportive (it is, after all, their job to look for any negatives) but they did not attempt to wreck the deal.

Irish politicians who could have been difficult about surrendering the Irish flag-carrier to foreigners (and partly British foreigners at that) were won over by the logic of the deal combined with the fear of what they would do with the airline if IAG walked away.

Finally, Ryanair, who had a large minority stake in the airline and could have proved very obstructive, gave in and agreed to sell their shares. They were even quite nice about it and wished Aer Lingus all the best in the future. Being Ryanair they could not resist a dig and commented that their original plan to buy Aer Lingus had been to give them a stake in the middle-market but since their “being nice” campaign had been so successful, they no longer felt they needed a more up-market brand. Of course, they have been able to cash in a holding for a good price and avoid the huge expense of further litigation. Even Ryanair can, on occasions, see when a fight is no longer worth the effort.

Business does not normally do happy endings but this genuinely seems like one where all parties win.

The Sage of Necker Island nails it

We have said several times that the proposal by IAG to buy Aer Lingus makes perfect sense for all parties. It is certainly the best available option for the Irish government to ensure the stability and growth of Aer Lingus and its employees. The idea that IAG just wanted Aer Lingus for its Heathrow slots was silly because part of the appeal for the company was the opportunity to carry large numbers of passengers to and from Ireland via its hubs – and they could not do that if that stopped flying to Ireland. Anyway, the Irish government has now agreed to sell its shares so that leaves IAG the job of doing a deal with the two minority shareholders, Ryanair and Etihad, who will have to decide whether they want cash or would prefer to remain passive investors.

Whilst logic pointed to the deal being good for all parties, anyone unconvinced only had to read a letter Richard Branson wrote to the Irish government asking them not to sell because, according to him, such a sale “would not be in the public interest”.

You can guarantee that whenever old Beardie uses that phrase, he means “not in the interest of Virgin”. He trots out the same old phrase every time he thinks the Virgin group’s franchise fees might be hit. In fact, on this occasion, it is quite hard to see Virgin Atlantic losing much, if anything from the deal – though that, of course is beside the point because in the Branson universe, any move by British Airways or its parent, is bound to be “against the public interest”.

Anyone who still had not made up their mind by this stage would surely have been swayed by another letter from that well known philanthropist, Donald Trump. Even he joined in the bandwagon by saying a sale would “not be in the public interest” because he was worried about the provision of air services for golfers at a new course he was developing. No doubt if golfers come to play in sufficient numbers at the new course, IAG will be only too delighted to fly them in.

With both Branson and Trump against the deal, IAG must have known the sale was as good as done.

Ryanair to the US – why now?

Yesterday’s announcement that the Board of Ryanair had given provisional agreement to planning transatlantic services was actually rather meaningless. The timeframe of “four to five years” for starting flights is vague, they do not have aircraft on order and they would have to come to agreements with individual airports so the talk of “fourteen destinations” is rather premature.

Sooner or later, Ryanair will start services to the US. It is just too tempting. They might well lose money but will avoid making fools of themselves as Norwegian have done. I am sure they have been looking at the possibility of starting flights to the US for some years. One day they will but it might not be tomorrow, or even the day after.

So why the sudden announcement?

The Irish government appears to be very close to agreeing the sale of Aer Lingus to IAG. Ryanair remains a shareholder and has enjoyed being a thorn in the side of the Irish government. It looks as if it will finally be forced to sell its shareholding in the airline and will no doubt ensure it gets the best possible price. However, IAG wants Aer Lingus partly because of its transatlantic flights. 

Yesterday’s announcement sounds rather an unsubtle way of saying “OK IAG, you can have our shares in Aer Lingus. We don’t want them anyway because we are starting our own flights to the US”.

That will allow any forced sale of shares by Ryanair to be presented as yet another triumph.

 

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. 

Why the surprise at the blocking of Ryanair’s bid for Aer Lingus?

As soon as Ryanair heard that Brussels was going to reject their bid for Aer Lingus on competition grounds, they went – as always – on the offensive. The decision was summed up as Brussels’ way of paying back its old adversary. Normally, when Ryanair start making silly statements most sensible people assume the opposite to be true but, in this case, Ryanair’s claims are being taken at face value. If only Michael O’Leary had been a bit more polite to all those eurocrats he would have been allowed to buy Aer Lingus, or so some people seem to think.

This seems wrong on so many fronts.

Firstly, whilst there is a great deal of name-calling in public, I am quite sure that Mr O’Leary knows that Ryanair owes its entire business to the EU, the open market and the various lucrative development grants that have been made. Similarly, Brussels must surely see that the huge growth of Ryanair is one of their major success stories. They might argue like cat and dog in public, and they probably do disagree on some issues, but underneath it all, the two parties know they have been very good for each other.

Secondly, whilst I am sure that Brussels does occasionally make decisions based on animosity towards individuals or companies, it would simply be too obvious in this case. If anything, I imagine they bent over backwards to be sure they could not be accused of bias.

But the really amazing thing is that some people actually thought it would  be reasonable for Ryanair to take over Aer Lingus and effectively control one country’s aviation. There were some who raised the monopoly question over BA’s bid for BMI  yet BMI was no competition for anybody. BMI’s position as chief shorthaul competitor to BA had long since been lost to easyJet who offer much more effective and aggressive competition. BA does not have a monopoly either in the UK shorthaul market or at Heathrow. Ryanair’s attempt to defuse the accusations of a monopoly by setting up a deal with flybe, which they would have subsidised, had very little credibility. If Brussels could stop Aegean buying the failing Olympic in Greece then surely there was no way they could ever allow Ryanair to buy Aer Lingus.

Now Ryanair has all the publicity it wants and is doing its best to paint itself as the injured party. They are threatening appeals but why bother? The only good thing to come out of a long-running appeal is that it will put off the evil day when Ryanair has to decide what to do with its shareholding in Aer Lingus.

Missing destinations mystery?

Today Emirates announced another new service for 2010, a daily round-trip between Dubai and Prague, launching next July. About time too you might say. But consider other European cities not already in their network, with no imminent plans for connection:  Barcelona, Brussels, Copenhagen (or anywhere else Scandinavian), Geneva, Madrid, not to mention Berlin, Helsinki, etc etc. Amsterdam only comes on line with Emirates in May 2010. And yet the airline has been flying to six UK airports for some years, including Newcastle and Glasgow.  Conspiracy afoot? Probably not, as in all likelihood commercial considerations rather than bilateral agreements and other restrictive practices are governing Emirates’ choice of destination. The array of UK destinations is more a testament to the boom the country was experiencing up to 2008 rather than anything else.

This is perhaps not however the case of KLM and Dublin. Dublin Airport earlier this year played host to well over 70 airlines. KLM was not one of them and never has been. If you want to fly direct between Dublin and Amsterdam only Aer Lingus will take you. Why? Well who knows for sure, (let us know if you do), but it has been the case since the dawn of time that it’s commercially convenient for both KLM and Aer Lingus not to compete on this route, so they don’t, and stuff the travelling public.