The IAG boss will have to raise his bid for the Irish carrier, but the hurdles look surmountable. Ian Taylor reports
Nine years after quitting Aer Lingus to take over at British Airways, Willie Walsh – now head of BA parent International Airlines Group (IAG) – has his sights set once more on control of the Irish carrier.
Walsh ran Aer Lingus from 2001 to 2005, having previously flown its aircraft as a pilot.
Aer Lingus rebuffed a bid reported to be close to €1.16 billion (£913 million) last week. The board told Walsh the bid “fundamentally undervalues” the carrier. But it seems inconceivable that would end Walsh’s interest.
The big prize for the IAG boss is the Aer Lingus landing slots at Heathrow – 23 pairs of them, making the Irish carrier the third-largest operator at the airport behind BA and Virgin Atlantic.
These won’t come cheap. Aer Lingus had a market value of €970 million (£760 million) before IAG’s bid, although a cash pile of €381 million could be set against that.
But there is more. A takeover would extend Walsh’s control of the transatlantic market, the world’s most lucrative, which IAG already dominates through BA (on the North Atlantic) and Iberia (south Atlantic).
The Financial Times quoted Capa Centre for Aviation analyst Jonathan Wober who noted: “Aer Lingus has been expanding aggressively on the Atlantic over the past year.”
Ireland has the added attraction of offering pre-take off customs clearance for flights to the US at Dublin and Shannon airports. Indeed, BA already makes use of the facilities at Shannon for its all-business class service between London City and New York.
Were a bid successful, BA could look to route UK regional traffic to the US via Dublin and free up further slots at Heathrow.
It is not as though Aer Lingus loses money. The carrier is operating profitably after a tough few years. However, Walsh would expect to make savings and increase margins at an airline where an operating margin of 4% last year was about one-third of that across IAG.
Walsh joined Aer Lingus at 17 as a trainee pilot, commuting to work by bus from his Dublin home. He may retain a sentimental attachment to the carrier, though that won’t be driving the bid. He will know the carrier and its possibilities.
The long-standing issue of a €750-million hole in the Aer Lingus pension fund appears close to being resolved.
The Irish carrier is poised to lose its chief executive Christoph Mueller next May when he takes charge at Malaysian Airlines. And a deal would bring Aer Lingus back into the Oneworld alliance which it left in 2008, bringing passengers from other members.
The situation appears favourable in other ways. Walsh will see the aviation market improving and the oil price falling. He will feel the hard work has been done at Iberia.
Ryanair owns 30% (29.9%) of Aer Lingus and it seems doubtful Walsh would have made a move without running the idea past Michael O’Leary, with whom he has cordial relations.
The budget carrier will be open to selling having been ordered to reduce its stake to 5% by the UK Competition and Markets Authority (although Ryanair is appealing) and having been repeatedly thwarted by the European Commission in its own attempts to buy Aer Lingus.
The Irish government owns 25% and, having weathered a protracted crisis following the financial meltdown of 2008-09, has made clear it would sell at the right price – despite consistently opposing a Ryanair takeover.
The Dublin government may feel IAG is a different proposition – although Walsh’s record at Iberia may make the Aer Lingus unions nervous.
Etihad Airways owns 5% of Aer Lingus and may fancy a larger stake, but it is prevented from taking a controlling share by EU law. It also has work to do on its recently acquired 49% stake in Alitalia (as well as a 29% share in Air Berlin and an EC inquiry into foreign stakes in EU airlines to contend with).
Aer Lingus’ biggest institutional investor, albeit with a 2.8% stake, is investment fund Crystal Amber. It responded to the IAG bid with a statement “fully supportive” of the board’s rejection.
But it added that if IAG returned with an improved offer: “We’d be happy to consider it.”
The timing looks good for Willie. The only issue could be the price.