Ryanair’s tenure as an Aer Lingus shareholder is either one of the worst cases of corporate vandalism ever seen in Ireland or yet another example of Michael O’Leary’s ability to think a bit bigger and longer than most.
Which of these two views you subscribe to probably reflects which side of the great Ryanair divide you stand. But as with most things the truth is probably a bit of both and until now at least tending towards the later.
In forming this view you have to accept two points. The first is that the overwhelming likelihood has always been that Ryanair will not be able to take over Aer Lingus. This was the case in 2006 when it acquired a 25 per cent stake within days of the company’s flotation, and remains even more the case today with several bids rejected and the company facing all sorts of anti-trust investigations and sanctions.
Things may have waxed and waned over the years, as economic circumstances deteriorated and management at Aer Lingus changed. But it was always hard to see the European Commission allowing one airline to dominate air traffic into and out of a member state, and a peripheral island economy at that.
The other point that you must accept is that Aer Lingus has never really been for sale. There are several reasons for this, the most obvious being political and strategic issues around the Heathrow slots and the bearing this has on the Government’s ability to sell its blocking 25 per cent stake.
But the real problem has been the massive hole in the pension scheme that Aer Lingus staff – with the exception of its pilots – share with the Dublin Airport Authority and the former employees of Team Aer Lingus.
The Aer Lingus unions have made it clear that they will not go along with any sale of the Government stake unless this problem is resolved. Sorting this out will require money, either from the Government or the sponsoring companies and that has not been forthcoming. Consequently, there has not been any serious bid to take over the airline from anyone other than Ryanair.
An expensive distraction
If you accept these two points then you can see how – until now at least – Ryanair has not really been the problem, when it comes to selling the Government stake or finding a partner for Aer Lingus.
In this context Ryanair’s attentions have amounted to little more than an expensive distraction for Aer Lingus management. But in return they have had a big, stable shareholder that has gone to extraordinary lengths not to interfere in the management of the airline in order to stay on the right side of the competition legislation. They have also been useful to management in other ways. You cannot say that it has not been of some use to Aer Lingus in its negotiations with the unions to be able to point out that Ryanair can vote down any proposals involving significant chunks of shareholder cash.
The main benefit for Ryanair in all this is that it has maintained itself in position to have a say in who owns Aer Lingus if a serious bid emerges. For all of Ryanair’s sledging, Aer Lingus remains one of its most serious competitors and potential rivals. Maintaining its stake has made sense for the last seven years and presumably still does , hence the fighting talk from Ryanair in response to the UK’s Competition Commission’s ruling that they need to sell down their stake in Aer Lingus because of competition concerns.
At any time over the last six years the appeal of this ruling would just be added to the long list of litigation taken by or defended by Ryanair in order to maintain their strategic stake in their rival.The status quo would continue and, after a fashion, no harm done because nothing was going to happen anyway.
Except that Aer Lingus now seems to be on the verge of cutting the Gordian knot that is the pensions deficit. The company indicated on Friday that it is minded to accept a labour court recommendation that would mean it injects €110 million into the pension scheme.
This would remove the biggest obstacle to the sale of the Government’s stake and thus the takeover of the airline by someone other than Ryanair.
It comes as no surprise then that Ryanair will oppose the move.
However unlike its previous shenanigans, this time Ryanair may seriously damage the interest of the company and its other shareholders.