'Govt won't sell Aer Lingus stake to Ryanair'

Sleepy

Anyone else see this? Aside from the fact that Air France, BMI and Aer Arran also cover the Dublin - London route are the government really so blind to the fact that, given the profitability of the route, other competitors wouldn't challenge Ryanair on it should they, as some are predicting would happen in a buy-out, use Aer Lingus as their trans-atlantic wing and cut out their short-haul routes in Europe?

I'd also love to know why this statement is coming from Christoph Mueller rather than the government themselves... I'd rather see him explaining how Aer Lingus plan to finance the necessary replacement of much of their current fleet whilst they're not expecting to return to profiltability until 2011?

The government can't do this for them under EU law. Ryanair practically have the money sitting in their bank account. If we're to sell our self-proclaimed "national carrier", surely it's better to sell it to a company that at least have some ties to this country rather than flogging it to foreign interests?

Love them or loathe them for how they've changed the airline industry in Europe, Ryanair at least pay their taxes here and there's no bolting the door when the horse has already left the stables: the market Aer Lingus compete in has irreversibly changed.

RTE.ie wrote:

The Government will only sell its 25% stake in Aer Lingus to a party that can guarantee its independence from Ryanair, the Aer Lingus chief executive said today.

In an interview with Reuters, Aer Lingus CEO Christoph Mueller said the Government would not sell its Aer Lingus stake, valued at around €150m, to Ryanair because it would crush competition. Ryanair already owns nearly 30% of Aer Lingus.

'The Government needs to make sure we are not taken over by Ryanair, because only two air carriers guarantee that the fares from London to Dublin remain very low,' Mueller told Reuters in an interview today.

'They will only sell to a party which guarantees the independence of Aer Lingus,' he added. He made his comments on the sidelines of an IBEC conference in Dublin today.

Aer Lingus has already fended off two hostile bids from Ryanair.

Britain's Office of Fair Trading launched an investigation last week into Ryanair's stake in Aer Lingus, which Ryanair's CEO Michael O'Leary subsequently called 'a wild goose chase'. Mueller said the probe was credible.

The Aer Lingus boss also said he was exploring closer links with an Asian airline to give the airline access to markets in the region.

'We are looking into more partnerships because we want to connect the world with Ireland and we still have a hole in Asia Pacific. We do not have an Asian partner, which we are seeking. We are talking now,' Mueller said, declining to give further details.

He added the partnership would not be sealed 'any time soon'.

Aer Lingus already has a partnership with United Airlines on long-haul flights between Europe and North America.

http://www.rte.ie/news/2010/1103/aerlingus-business.html

ei.sdraob

The fact that Ryanair has successfully out-competed state airline (and others) in a space that had no real competition, shows the power of having competitive capitalism at work. Now only if we had more "Ryanairs" in education, healthcare and energy sectors that are dominated by state and semistate elephants screwing customers and bringing up the cost of living in this state.

Cookie_Monster

The whole thing is very sordid and strange. About the only Airline merger/takeover the EU ever opposed.

Sell it to Ryanair and dismantle it and take the money. It nothing but a bloated, wasteful relic of the last generation.

Sleepy

Actually Cookie Monster, I don't think O' Leary would asset strip it.

The gates in Heathrow and Aer Lingus branding would allow him to run an airline in two different market spaces - charging more for the 'premium service' of being flown into Heathrow in an Aer Lingus branded 737-200 rather than into Luton with the trumpet noise sounding if you land "on-time.

Aer Lingus would also be a long established name on the transatlantic route and it's branding no doubt appeals to the American-Irish market.

It's the business practices that need trashing. In order to do this, he may need to "close" Aer Lingus temporarily, making all staff redundant before starting a "new" airline under the same name and branding but with staff hired on Ryanair contracts etc. but I couldn't see him throwing out the baby with the bathwater.

Nody

I'd guess a big reason can be spelled DAA and the new terminal...

Smellsofsoap

Sleepy wrote: »

Anyone else see this?.........

A few misconceptions here.........

EI Fleet renewal: EI have already renewed their fleet. They offer probably the best physical product to the USA out of Ireland. They have deferred delivery of a number of A330 to help the balance sheet while also negotiating new terms with Airbus to free up cash that had been set aside for fleet payment. So no problems with the fleet in EI.

In fact FR are increasingly 'parking' their aircraft as they are taking delivery of so many and the cancellation/deferral clauses from Boeing are very severe. With the current economic situation FR are finding it harder to sell on their older B737-800 to other airlines.

DUB-LON route: FR and EI are the major players on this route. BMI have recently scaled back their operation,closing their Dublin base. Aer Arann and CityJet are small operations serving niche markets. In terms of frequencies DUB-LON is among the top 10 busiest routes in the world. FR have already shown how the can drive off competition.(Easyjey started to fly to Cork, FR responded by dropping fares and doubling the number of flights, when EZ pulled out FR put their fares back up) Imagine a single company controlling the DUB-LON route? Any airline that tried to enter would find themselves faced with a 20-30 departures per day and E0.00 fares.


EI profitablity: In the recent H1 2010 results EI indicated an expectation of profitability for THIS year. Thats pretty good for a company that lost over E90M in 2009 under the last CEO.

Govt share value: Why on Earth would the Govt sell their EI shares to FR for E150M effectively giving EI to FR when EI assets are worth more then that. EI curently have over 1 Billion in cash reserves (H1 results) along with the value of their LHR slots (4 largest after BA,VS and BMI) the value of their aircraft and all their real estate (Hanger 6 etc) In point of fact the last FR bid for EI was valued at E750M, at that point the value of EI assets was over a billion euro.

FR loyalty to Ireland: This is the same FR that recently tried to blackmail Shannon airport into giving them lower charges than anyone else after their new route contract expired? This is the same FR that is deliberately losing money on the KIR-DUB PSO route purely to prevent Aer Arann getting any PSO subsidies? (Personally I oppose all the PSO subsidies when we have motorways)
This is the same FR that are currently restructuring their network to move their bases from Northern to Southern Europe to avail of cheaper labour costs.
FR are a massively successful airline (2nd only to SouthWest in terms of most profitable airline in the World) but if the market dried up in Ireland they would be out in a heartbeat. EI are tied to the Irish market through their customer base and brand identity.

P.S. A possible reason for FR to stay in Ireland is that the IAA have one of the lowest levels of monitoring/interference in airline operations in the EU.

EI vs FR: In recent years EI (under previous CEOs) did try to compete with FR. In my opinion they will never win this battle. The behemoth that is FR is unstoppable. In recent weeks the EI CEO has indicated that EI have been targeting a different market segment, 'no longer chasing the lowest fares'. An example would be the new fare structre with EI where you can choose a ticket price than already includes bag & seat charges and food with no further add-ons.

So EI are already targeting the 'premium' market that you mentioned. You also refer the the need to 'trash the business practises' in EI.
-By this do you mean stemming the losses suffered in 2008-2009? Which Mueller has already addressed.
-Do you mean not fighting a losing battle with FR? Which Mueller had already changed.
-Do you mean agressively marketing the advantages of the EI network?....You guessed it, Mueller has alrady done this...

Perhaps the fact that the Greenfield restructuring plan is only 50% complete may hint that EI is addressing what were its problems over the years. (Too much tail wagging the dog syndrome) The second half of the plan aims to 'reduce back office staff by 40%' Maybe that snippet will satisfy your demands?

jimmycrackcorm

Does anyone actually believe that Michael O'Leary would still keep fares low if he got his hands on Aer Lingus?

Cookie_Monster

jimmycrackcorm wrote: »

Does anyone actually believe that Michael O'Leary would still keep fares low if he got his hands on Aer Lingus?

probably not to Heathrow.
Does anyone actually believe AL is a viable airline though?

Sleepy

Smellsofsoap wrote: »

A few misconceptions here.........

EI Fleet renewal: EI have already renewed their fleet. They offer probably the best physical product to the USA out of Ireland. They have deferred delivery of a number of A330 to help the balance sheet while also negotiating new terms with Airbus to free up cash that had been set aside for fleet payment. So no problems with the fleet in EI.

Thanks for clearing this up. How come most of the European fleet is so shabby looking then? Poor maintenance?

DUB-LON route: FR and EI are the major players on this route. BMI have recently scaled back their operation,closing their Dublin base. Aer Arann and CityJet are small operations serving niche markets. In terms of frequencies DUB-LON is among the top 10 busiest routes in the world. FR have already shown how the can drive off competition.(Easyjey started to fly to Cork, FR responded by dropping fares and doubling the number of flights, when EZ pulled out FR put their fares back up) Imagine a single company controlling the DUB-LON route? Any airline that tried to enter would find themselves faced with a 20-30 departures per day and E0.00 fares.

And given the potential for profit, it'd be worth fighting for a share of it. Just ask Richard Branson who faced the very same scenario with BA back in the day...

EI profitablity: In the recent H1 2010 results EI indicated an expectation of profitability for THIS year. Thats pretty good for a company that lost over E90M in 2009 under the last CEO.

Based on this article: http://www.irishtimes.com/newspaper/breaking/2010/1013/breaking23.html it would seem that profits this year are pretty unlikely since the profits being expected are those "before exceptional items" (I'm assuming this refers to Ash Cloud related losses) and the fact that planned industrial action may impact on this...

Govt share value: Why on Earth would the Govt sell their EI shares to FR for E150M effectively giving EI to FR when EI assets are worth more then that. EI curently have over 1 Billion in cash reserves (H1 results) along with the value of their LHR slots (4 largest after BA,VS and BMI) the value of their aircraft and all their real estate (Hanger 6 etc) In point of fact the last FR bid for EI was valued at E750M, at that point the value of EI assets was over a billion euro.

If Ryanair were only bidding 750m for a billion euro worth of assets what was the difference in price based on? Future earnings potential? If so, should the government itself be looking at asset stripping the company if it's assets are worth more than it is as a going concern?

Or was the Ryanair offer including a write-down of something like the perceived goodwill figure on the Balance Sheet?

AFAIR, the Ryanair offer valued Aer Lingus more highly than the stock market at the time did. Does this mean that Aer Lingus's balance sheet is worth more than their market capitalisation by almost €250m? If so, again, why haven't they been asset stripped already?

FR loyalty to Ireland: This is the same FR that recently tried to blackmail Shannon airport into giving them lower charges than anyone else after their new route contract expired? This is the same FR that is deliberately losing money on the KIR-DUB PSO route purely to prevent Aer Arann getting any PSO subsidies? (Personally I oppose all the PSO subsidies when we have motorways)
This is the same FR that are currently restructuring their network to move their bases from Northern to Southern Europe to avail of cheaper labour costs.
FR are a massively successful airline (2nd only to SouthWest in terms of most profitable airline in the World) but if the market dried up in Ireland they would be out in a heartbeat. EI are tied to the Irish market through their customer base and brand identity.

P.S. A possible reason for FR to stay in Ireland is that the IAA have one of the lowest levels of monitoring/interference in airline operations in the EU.

Another would be the low corporation tax rate and generally business-friendly environment.

I'd look at your earlier comparisons as "This is the same Ryanair that runs one of the most efficient large scale organisations in the world and continually challenge their incompetent government to try and do the same".

EI vs FR: In recent years EI (under previous CEOs) did try to compete with FR. In my opinion they will never win this battle. The behemoth that is FR is unstoppable. In recent weeks the EI CEO has indicated that EI have been targeting a different market segment, 'no longer chasing the lowest fares'. An example would be the new fare structre with EI where you can choose a ticket price than already includes bag & seat charges and food with no further add-ons.

So EI are already targeting the 'premium' market that you mentioned. You also refer the the need to 'trash the business practises' in EI.
-By this do you mean stemming the losses suffered in 2008-2009? Which Mueller has already addressed.
-Do you mean not fighting a losing battle with FR? Which Mueller had already changed.
-Do you mean agressively marketing the advantages of the EI network?....You guessed it, Mueller has alrady done this...

Perhaps the fact that the Greenfield restructuring plan is only 50% complete may hint that EI is addressing what were its problems over the years. (Too much tail wagging the dog syndrome) The second half of the plan aims to 'reduce back office staff by 40%' Maybe that snippet will satisfy your demands?

By 'trashing the business practices', I of course meant, throwing out the unions.

I'd agree with you that going head to head with Ryanair for the low fares market was an idiot's mistake for Aer Lingus. They simply haven't got the ability to do so and their staff are too unionised to even make it worth their while to try.