Sunday, October 08, 2006
Ryanair bid for Aer Lingus - my views
The Ryanair bid for Aer Lingus poses a number of questions. They say they are serious and of course bids cost money. My view is that it could be the Ryanair flair for publicity coming to the fore again. Why do I hold this view?
Well to be able to take over Aer Lingus they will need to get over 50% of the shares in Aer Lingus. The Irish government with 28% if the shares have said they will not be selling. Aer Lingus pilots are believed to hold another 15% of the shares and are not likely to sell.
There will also be a significant proportion of investors that bought Aer Lingus shares in the flotation who want Aer Lingus to prosper as a company in its own right. If they wanted to invest in a competing airline they would have bought Ryanair shares.
Furthermore the takeover does not follow the low cost airline model that Ryanair has followed with great financial success. The business plan for Aer Lingus is quite different from Ryanair especially with respect to the long haul routes, although Aer Lingus has been cutting fares on its short haul routes with some fares as competitive as Ryanair and considering Aer Lingus flies to the main airports at peak times often represent better value than their no frills competitor.
Finally there appears to be complaints from Ryanair investors of the belief that an Aer Lingus acquisition would drag down the company's profits and are upset that they were not consulted before the bid was launched.
So getting back to my point, Ryanair has amassed a massive amount of publicity once again. This time it has cost them, but I would not be surprised if they withdrew their bid and cashed in their shares. They would most likely make a decent profit on the trade as the shares are trading at a significant premium now. They should easily cover their bid costs. They would then walk away with a higher profile in Europe now that the financial institutions and public are aware of how successful Ryanair is.
Well to be able to take over Aer Lingus they will need to get over 50% of the shares in Aer Lingus. The Irish government with 28% if the shares have said they will not be selling. Aer Lingus pilots are believed to hold another 15% of the shares and are not likely to sell.
There will also be a significant proportion of investors that bought Aer Lingus shares in the flotation who want Aer Lingus to prosper as a company in its own right. If they wanted to invest in a competing airline they would have bought Ryanair shares.
Furthermore the takeover does not follow the low cost airline model that Ryanair has followed with great financial success. The business plan for Aer Lingus is quite different from Ryanair especially with respect to the long haul routes, although Aer Lingus has been cutting fares on its short haul routes with some fares as competitive as Ryanair and considering Aer Lingus flies to the main airports at peak times often represent better value than their no frills competitor.
Finally there appears to be complaints from Ryanair investors of the belief that an Aer Lingus acquisition would drag down the company's profits and are upset that they were not consulted before the bid was launched.
So getting back to my point, Ryanair has amassed a massive amount of publicity once again. This time it has cost them, but I would not be surprised if they withdrew their bid and cashed in their shares. They would most likely make a decent profit on the trade as the shares are trading at a significant premium now. They should easily cover their bid costs. They would then walk away with a higher profile in Europe now that the financial institutions and public are aware of how successful Ryanair is.
