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Minister for Transport Paschal Donohoe Sam Boal/Photocall Ireland

No deal: The government is playing hardball over the Aer Lingus sale

The Transport Minister wants a longer guarantee on the airline’s Heathrow slots

Updated 21.30pm 

THE WILL-THEY won’t-they IAG/Aer Lingus deal faces a further setback as Transport Minister Paschal Donohoe has dismissed IAG’s guarantee regarding Aer Lingus’ Heathrow slots.

Donohoe’s statement does not dismiss the deal completely (it stresses they will listen to any improved offer IAG come up with for the state’s 25% shareholding), but it will certainly show to what lengths IAG are willing to go in their pursuit of the airline.

The key points to the statement are:

  • The government requires a longer period of guarantee on the infamous Heathrow slots than five years (speaking in front of the Oireachtas transport committee recently IAG CEO Willie Walsh had said it would be madness for him to provide such a guarantee)
  • The state wants firm commitments regarding growth plans for Cork and Shannon
  • Clarity on what impact a takeover would have on employment prospects is required, together with a timeframe on when new employment is to be created

The minister was speaking to reporters at Leinster House this afternoon.

Later on RTÉ Radio’s Drivetime programme, despite repeated questioning, Donohoe wouldn’t say if the Government would ‘like’ for IAG to come back with a better offer.

He insisted: “That’s a matter for AIG. [This bid] does not meet the criteria. To say any further than this would do the job of IAG.”

The Fine Gael TD said he would not publish the advice from an interdepartmental expert steering group yet because of the amount of commerically sensitive material in it.

Speaking tonight at to the Irish Hotels Federation, he said:

…We need more clarity on these matters and, as of now, the information and commitments that have been provided to date do not provide a basis on which the Government could give an irrevocable commitment to accept an offer to dispose of its shares, should one be made by IAG.

In line with stated policy, the Government remains open to considering an improved proposal.

This, I think, is the right approach. As tourism businesses, you will know the importance of connectivity to this island nation. To ignore those concerns, would be to ignore the importance of the 200,000 tourism jobs.

‘Remains open’

The only positive news for the deal is that the government has ‘noted’ the fact that Aer Lingus’ board have expressed themselves satisfied with IAG’s valuation of the airline at €2.55 per share.

Donohoe said in a statement that the government “remains open to considering any improved proposal which IAG may bring to the Steering Group”.

So it’s not entirely back to square one.  Square two, perhaps. However Walsh told the Transport Committee two weeks ago that this would be the best offer that IAG would put forward, indicating any second offer would not be as good as the first.

Meanwhile, Labour TD Joe Costello earlier described the offer currently on the table as ‘bargain basement’.

Irish Aid Reports Joe Costello Laura Hutton / Photocall Ireland Laura Hutton / Photocall Ireland / Photocall Ireland

“The 23 Heathrow slots alone are worth the €1.3 billion being proposed for the entire airline,” said Costello, suggesting the coalition partners aren’t close to seeing eye to eye on the topic.

The five year guarantee is wholly inadequate.  Aer Lingus is a very valuable airline and the reasons for the Irish people holding the 25% share remain valid today.

The saga shows no sign of ending anytime soon.

Earlier this morning, Aer Lingus announced excellent financial results for 2014.

The national carrier’s operating profit came through at €72 million, up from €61.1 million (17.8%) in 2013.

Meanwhile, overall revenue was up 9.2% to €1.6 billion.

The firm did post an overall loss after €180 million in ‘exceptional items’ were taken into account, chiefly the resolution of long-standing pension funding issues.  A voluntary redundancy scheme was also instigated at the start of 2015.

shutterstock_179252099 Shutterstock / Lukas Rebec Shutterstock / Lukas Rebec / Lukas Rebec

As might be expected revenue was chiefly driven by the airline’s long-haul flight performance where revenue was up 28.4% to €490 million.

Short haul (where Aer Lingus faces extremely stiff competition from low cost carriers like Ryanair) revenue was up just €2 million to €791 million.

The company has proposed a dividend of 5 cent per share for 2014, up from 4 cent the previous year.

‘The best since the crash’

Outgoing chief executive Christoph Mueller said the ‘strength’ of the airline’s business model has been proved.

“These results are the best since the financial crash,” he told RTE’s Morning Ireland.

Mueller also reiterated his support for the IAG takeover bid, suggesting that any political opposition was based on reasons other than a realistic appraisal of the deal.

These negative  stances are based on parties having taken a position long in advance and being reluctant to reverse that stance in public.
We are in very constructive talks with the unions and there is a great deal of excitement about the deal.
IAG’s investment would be the greatest the country has seen since before the crisis, and it will put us in a position to create far more jobs than we could do on our own.
It’s a good thing for Ireland as a whole.

Mueller will exit his role later this year to be replaced by current executive Stephen Kavanagh.

All in all the airline appears to be in rude health in advance of any deal.

Evaluating the results, Stephen Furlong, analyst at Davy Stockbrokers, suggested that as positive as the results are, the airline’s share price (currently €2.25) is entirely dependent on the success or otherwise of IAG’s bid.

“We do not believe that another bid as favourable will materialise – or at least not one that would get past the regulatory authorities,” he said (IAG’s most recent bid on 27 January valued shares in Aer Lingus at €2.55 – at end September the share price was €1.42).

 The current bid substantially increases growth opportunities and reduces risk in the very uncertain world of aviation.
If the bid fails the stock will almost certainly return to its previous levels.
For industry, individual airline and national reasons this deal should happen. There is no other practical conclusion.

- additional reporting from Órla Ryan, Nicky Ryan and Hugh O’Connell

Originally published at 10.04am 

Read: The potential sale of Aer Lingus is ‘high stakes, very serious and difficult’

Read: So, Aer Lingus has joined Tinder

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