British Airways’ owner moves to take over Aer Lingus

Aer Lingus has rejected a takeover approach from British Airways’ parent company, IAG, saying it “fundamentally undervalues” the airline.

IAG chief executive Willie Walsh – formerly a pilot and chief executive at Aer Lingus – had previously denied rumours that he was looking to add the Irish carrier to the group, which would bring with it valuable extra take-off slots at Heathrow airport.

But industry observers had identified it as a possible target for IAG’s continued consolidation of European airlines, particularly with Walsh’s previous experience of the Dublin-based carrier.

The Aer Lingus board said it had “received a preliminary, highly conditional and non-binding approach from IAG”. Its statement continued: “The board has reviewed the proposal and believes it fundamentally undervalues Aer Lingus and its attractive prospects … there can be no certainty that any offer will be made nor as to the terms of any offer. Shareholders are strongly advised to take no action.”

The airline’s share price shot up almost 20% on news of the move, but dropped back after the Aer Lingus rejection.

IAG had earlier issued a statement noting the movement in the share price of Aer Lingus and confirming it had “submitted a proposal to make an offer for the company, which has been rejected by the board of Aer Lingus”.

It added: “There can be no certainty that any further proposal or offer will be forthcoming. A further statement will be made if and when appropriate.”

The approach was made at the start of this week and rejected by the Aer Lingus board on Wednesday.

A takeover has become more likely as the Irish carrier’s largest single shareholder, Ryanair, is expected to lose an appeal on Friday against a UK competition ruling to sell down its 29.9% stake. However, if Ryanair chooses to continue its battle in European courts, the process could be delayed further.

Ryanair’s own attempts to buy Aer Lingus in full were thwarted. On its third and last attempt in 2012, it signed a memorandum of understanding with IAG to allow BA to buy most of Aer Lingus’s 24 slots at Heathrow if and when Ryanair won full control. A Ryanair spokesman said: “Ryanair does not comment upon or engage in rumour or speculation.”

Aer Lingus, which has close to €1bn (£780m) in cash on its balance sheet, is 25% owned by the Irish government while Gulf carrier Etihad also has a 4% stake. The Dublin government would be prepared to listen to buyers: Ireland’s department of transport has said it would be open to selling its stake at the right price.

While Aer Lingus’s chief executive Christoph Mueller is to step down in May, to take over at embattled Malaysian Airlines, the Irish flag carrier is seen to be in good health: last month it raised its profits forecast after recording an operating profit for the summer months of €113m, up 20% for the quarter from 2013 and its strongest results since the financial crisis hit Ireland.

Buoyed by a boom in transatlantic passengers using Dublin as a hub, it announced plans to increase its routes to the US with a ninth direct service, to Washington DC, as well as adding daily flights to San Francisco, expanding overall transatlantic capacity by 20% for 2015.

Aviation analyst John Strickland said: “A takeover would fit from an IAG position, but the airline would have challenges if it returns with another bid: there could be regulatory concern or challenges from other airlines on competition grounds – but not a show-stopper.

“Aer Lingus has been successful even against a difficult economic climate in Ireland, and a deal would give IAG an even stronger network position at Heathrow.”

Walsh joined BA from Aer Lingus in 2005 and set up IAG in 2011 when he merged the national airline with Spanish flag carrier Iberia. It has since acquired Vueling, a Spanish airline, and Walsh has made no secret of his belief that there must be more mergers and takeovers if European airlines are to thrive. However, as recently as October he told Irish newspapers that he had “no designs on Aer Lingus”.

Willie’s round trip

An IAG takeover would see Willie Walsh once again at the helm of Aer Lingus, where he started his aviation career in 1979 as a cadet pilot. He worked his way up to captain by 1990, then moved into the airline’s management ranks after gaining an MBA at Dublin’s Trinity College.

After a brief sojourn running Futura, a Spanish charter airline in Mallorca, Spain, Walsh came back to Ireland in 2000 as chief operating officer, and was promoted to the top job a year later, replacing Michael Foley. He soon earned a reputation as a hard-nosed slasher, axeing jobs to turn the loss-making airline into one that generated large profits.

Irish carrier’s board rebuffs IAG’s initial approach but news boosts share price by 20%