Ryanair agrees to sell its 29.8% stake in Aer Lingus to IAG

Ryanair (Dublin) has agreed to sell its 29.8 percent share in Aer Lingus (Dublin) to the International Airlines Group-IAG (British Airways, Iberia and Vueling Airlines) (London). The airline issued this statement:

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The Board of Ryanair Holdings PLC today (July 10) confirmed that it has voted unanimously to accept the IAG offer for Ryanair’s 29.8% shareholding in Aer Lingus Group plc. Ryanair’s stake in Aer Lingus has been available for sale since May 2012 and the Board believes that the current IAG offer maximizes Ryanair shareholder value.

In line with this decision, Ryanair will now vote in favor of the motion at the Aer Lingus EGM on July 16 (to give the Irish Government a golden share over Aer Lingus’s Heathrow slots) and Ryanair will also vote its 29.8% shareholding in favor of acceptance of the IAG offer, subject to this offer receiving regulatory approval from the European competition authorities.

Ryanair’s Michael O’Leary said:

“We believe the IAG offer for Aer Lingus is a reasonable one in the current market and we plan to accept it, in the best interests of Ryanair shareholders. The price means that Ryanair will make a small profit on its investment in Aer Lingus over the past 9 years.

This sale of our stake is timely given that our original strategy for Aer Lingus (to use it as a mid-priced brand to offer competition to flag carriers at primary airports) has been overtaken by the successful rollout – since September 2013 – of Ryanair’s “Always Getting Better” strategy, which has seen the Ryanair brand successfully enter many of Europe’s primary airports, being rewarded with strong growth in our network, traffic, load factor and profitability, while keeping our fares low and our punctuality high.

We wish IAG well with their takeover of Aer Lingus. When Ryanair first bid for Aer Lingus in late 2006, Ryanair (36 million passengers) carried 4 times Aer Lingus traffic (9 million). Today Ryanair (over 100 million) carries more than 10 times Aer Lingus traffic (10 million), and we will continue to deliver the vast majority of Ireland’s traffic and tourism growth in the coming months and years.”

Ken Odeluga, a senior market analyst at www.cityindex.com.sg comments on this latest news:

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It has taken the better part of seven months for IAG to put the final pieces of the Aer Lingus puzzle in place.

Ryanair has, after much delay, which it insisted was not down to intransigence, agreed to sell its 30% to IAG, which had already struck a deal with Ireland’s government to purchase the country’s 25%.

Reports that the EU will swiftly grant conditional approval appear credible.

Concessions by IAG were accepted by the antitrust authorities this morning. IAG offered to relinquish some slots and to give its competitors special terms, like allowing them to provide connecting at favourable terms.

All these agreements will tend to focus investors’ minds back on the details of the €1.3 billion bid, for which a strong part of the rationale rests on highly prized routes from Heathrow and lucrative routes between the UK and North America.

Aer Lingus had 300 slots at Heathrow as of December, with industry figures suggesting each is worth at least £5 million  per annum.

Also, Aer Lingus is not the unprofitable airline it was say about 15 years ago or more. It’s stronger in margin terms than Lufthansa, for instance, and had at least €550 million in free cash at last tally.

The additional 3.5%-4% of Heathrow market share will consolidate IAG’s dominance at the hub, ahead of the extension of capacity.

But now comes the hard part.

Despite its recent forecast upgrades, IAG remains the least profitable airline operator based in the UK or Ireland.

EasyJet and Ryanair are tightly matched and each seems to swap marginal dominance over the other every few years or so.

Either way, the pair has largely locked out all other large competitors in Europe, including IAG, for the last decade.

Plus, having already written down the value of its Aer Lingus stake, Ryanair’s £400 million proceeds from the sale will go straight to its bottom line.

The only way for a rival catch and match with the two above in terms of profits, is to grow, probably inorganically, and probably not in Europe, in the medium term.

With the soon-to-be-cemented deal, IAG has given itself the best chance among any large European carrier to close the profit gap, and the scale to absorb strategic hits to margins in Europe.

Top Copyright Photo: Paul Bannwarth/AirlinersGallery.com. Ryanair Boeing 737-8AS EI-DPM (msn 33640) lands in Tenerife Sur.

Ryanair aircraft slide show: AG Airline Slide Show

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Aer Lingus aircraft slide show: AG Airline Slide Show

Bottom Copyright Photo: AirlinersGallery.com. Aer Lingus Airbus A319-111 EI-EPU (msn 3102) taxies to the gate at London’s Heathrow Airport.

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