ANALYSIS:Ryanair's Michael O'Leary will have to be creative if he is to change the European Commission's mind, writes CIARAN HANCOCK,Business Affairs Correspondent
FOR THE third time in almost six years, Michael O’Leary has taken everyone by surprise by making an offer for Aer Lingus.
It comes less than a week after it was confirmed that the UK’s Competition Commission would investigate Ryanair’s 29.8 per cent shareholding in Aer Lingus.
This could force Ryanair to sell its stake, which dates back to late 2006 when O’Leary began hoovering up shares in the airline following its initial public offering.
Is O’Leary getting his retaliation in first in relation to this investigation?
Or is he trying to flush out interest in Aer Lingus given that the Government decided earlier this year to sell its 25 per cent stake?
Ryanair is significantly under water on its €400 million-plus investment in Aer Lingus shares.
It nothing else, O’Leary has put a floor of €1.30 on the stock, which has traded below €1 a share for most of the time since Ryanair’s last bid in 2008.
Etihad’s recent decision to buy just under 3 per cent of Aer Lingus offers the potential of a deal with a third party.
Bloomberg quoted Denis O’Brien, who owns more than 3 per cent of Aer Lingus, as stating that Ryanair’s move might be a “ploy” to initiate talks with Etihad.
However, European Commission rules prohibit Abu Dhabi-based Etihad from owning a controlling stake in an EU airline.
And the UAE carrier has so far signalled its interest only in the Government’s 25 per cent stake.
Etihad is taking a watching brief on Ryanair’s latest offer and won’t be bounced into any counter-move.
While O’Leary has decided to keep mum for now on the reasons for his latest bid, it seems he is quite serious in his renewed interest to acquire Aer Lingus. This is not a bluff.
How will he obtain commission approval, having been knocked back in 2007, a decision that was upheld on appeal in 2010?
This is not clear. If anything, Ryanair’s and Aer Lingus’s dominance in Ireland is greater now than in 2007. Figures from the Dublin Airport Authority show that in 2007, the pair had a combined 73 per cent of traffic in Dublin. In 2011, that figure was 80 per cent.
Last year, the pair had a combined 84 per cent of traffic at Cork and 64 per cent in Shannon, where US transatlantic operators account for a chunky part of the airport’s business.
Figures compiled by industry group Anna Aero show that Aer Lingus and Ryanair compete directly (the same airport) on 22 routes from Dublin and indirectly (different airports but serving the same destination) on 14.
There are 30 routes where they don’t compete.
Put differently, Ryanair competes either directly or indirectly on 73 per cent of the seats offered by Aer Lingus to Europe.
In 2007, the commission decided that a Ryanair takeover of Aer Lingus would create a “monopoly or a dominant position” on 35 routes affecting 14 million passengers and that the remedies offered by Ryanair – including surrendering certain routes to competitors – were not sufficient.
O’Leary will have to be a lot more creative with his remedies this time around if he is to change the commission’s view.
As my colleague in Brussels Arthur Beesley has discovered, the commission has only once before reversed a decision on a corporate takeover such as this.
This process could run for up to nine months and move straight into a phase two investigation.
Any change of heart by the commission will boil down to the remedies that O’Leary can offer. It will also hinge on whether other airlines will be willing to take up the challenge of operating the routes in Ryanair’s backyard that the airline gives up to secure approval for the takeover.
There is also the small matter of persuading the Aer Lingus board and its shareholders to approve a deal.
This will be a tall order.