[BigDog.]

As Christoph Mueller, EI’s high performing CEO planned move to the hardest job in aviation – to turn around Malaysia Airlines – occurs, EI announces Stephen Kavanagh as the new EI CEO.

http://www.bloomberg.com/news/articles/2015-02-16/aer-lingus-appoints-new-ceo-amid-iag-push-to-finalize-bid

It is a rare occurrence for an erstwhile “Chief Strategy and Planning Officer” to gain top spot so methinks it is probably a stop gap with minimal cost as SK is a 25+ year long standing employee.

[BigDog.]

An FT analysis of the perceived thinking of the Irish Govt. indicates Walsh would need to move on the IAG offer in a variety of ways to be acceptable.

a) Permanent (not just 5 year) guarantees for LHR connectivity.
b) Cork and Shannon guarantees for UK and broader connectivity
b) Valuation appears low if recent slot valuation together with cash position is accurate.

Also Walsh’s history is against him.

The FT reports…..

…Retaining the Heathrow slots to ensure Irish “connectivity” is the bottom line for Enda Kenny as the Irish taoiseach goes into countdown for a general election. “I’m worried, concerned about the future of the country [without control of the Heathrow slots]”, he said recently, adding that he would require a “permanent cast-iron guarantee” from IAG that the Heathrow to Ireland connection would remain intact.

Such anxiety, shared at regional level by Cork and Shannon airports, is rooted in the fear that Ireland will be cut off from international connections if Aer Lingus’s new owners find better uses for the Heathrow slots than flights to Ireland. The fact that numerous daily flights connect Ireland to destinations other than Heathrow does not seem to matter to Mr Kenny. Nor does the fact that the Dublin-Heathrow route, one of the world’s busiest, would be attractive to other airlines. He wants those slots to remain dedicated to Ireland.
Mr Kenny’s demand is “hysterical nonsense”, says Michael O’Leary, chief executive of Ryanair, which owns nearly 30 per cent of its smaller Irish rival.

He has urged Dublin to stop “faffing about” with its 25 per cent shareholding and to support a strategy that will expand Aer Lingus. Ryanair — which spent more than €400m on its Aer Lingus stake between 2006 and 2008, but has been blocked from an outright takeover by antitrust regulators — will recoup most of its original investment if the IAG bid goes through. Mr O’Leary claims that if Aer Lingus remains independent it will “wither on the vine”.

In a country where memory is long, an added twist to the saga involves Willie Walsh, the Irish IAG boss. In 2004 the former pilot, who had risen through the ranks to become Aer Lingus chief executive, asked Dublin to allow a management buyout offer. Bertie Ahern, then taoiseach, accused Mr Walsh of trying to “steal” the airline, at that time 85 per cent owned by the state. Mr Walsh took off for British Airways, and Aer Lingus was floated in 2006. Although Mr Ahern later softened his remarks, lingering suspicions remain in some quarters over Mr Walsh’s motives.

These suspicions may have gained altitude in the past week when it was reported that SAS, the Scandinavian airline, had sold one solitary Heathrow slot for a reputed $60m. By some estimates, this deal makes the Aer Lingus Heathrow slots worth €1.2bn — not too far off Mr Walsh’s overall bid. When Aer Lingus’s €400m cash together with its €700m fleet are considered, and since next year is the centenary of the 1916 Easter Rising, Irish politicians may be inclined, for the time being, to try and hold on to this tiny but symbolic outpost in the heartland of the old enemy….

[AMcWhirter]

The new CEO backs the IAG offer. Says 500 new jobs would be created.

http://www.bbc.co.uk/news/world-europe-31511992

[canucklad]

So based on the SK slot sale, IAG’s valuation doesn’t even match the current LHR slots worth , never mind the airline itself or its unique ability to offer pre-clearance at it’s hub……

The point about the regional airports in Ireland should not be discounted. And remember that Belfast should also fit into that category. Especially when you consider how contemptuously BA treated the route pre & post the BD takeover !!

[AnthonyDunn]

@ canucklad – 18/02/2015 09:37 GMT

It is necessary to point out that not all slots are equal: I would anticipate that peak hour slots (06:30 – 09:30 and 16:30 – 20:00 M-F) are likely to be worth rather more than mid-morning and mid-afternoon ones. I’ve no idea which slot SK sold on but at USD60Million, that would have to be a peak hours one.

[AndrewinHK]

IAG can still get useable extra slots by assuring the aer Lingus LHR slots are used for Ireland services. It can use the 8 daily flight slot pairs used for BA metal to Dublin and cancel those services, up gauge the aircraft used by Aerlingus To LHR, the EI a330 I would imagine will appear on the route as Iberias a340/330 operate on the Madrid-LHR route.

So many people demonise IAG and Walsh, but this deal screams potential to me for Aer Lingus. It will give them access to BA frequent flyers and that will help them pull massive amounts of UK region traffic into Dublin and that frees up BA to pull in more Euro or Longhaul transfers through LHR.

[transtraxman]

I would like to remind readers that BA pulled out of the LHR-Dublin & LHR-Cork routes a few years ago leaving them to Aer Lingus as a codeshare partner. With the purchase of BMI, BA acquired additional slots into those two cities and as a result resummed flights into Dublin.
That being the case then there is maneuverability to rejig those slots by reducing the total number – meaning that BA can reduce its share and still satisfy the demands of the Irish Government. Then everybody would be happy.
In addition to that I should remind you that Virgin Atlantic´s Little Red was set up to provide competition into LHR from Manchester, Edinburgh and Aberdeen using slots ceded by BA after the purchase of BMI. Since these are not to be continued from this year then they revert to BA.
That means that BA has a lot of slots to use to expand services to other markets without touching the slots of Aer Lingus.I thus agree with amc1234.

[FaroFlyer]

Am I alone in thinking that the real purpose behind the acquisition is to find a “low cost” airline for BA? Iberia has Vueling; AF / KL have Transavia and the LH Group have German Wings / Eurowings. BA were well ahead of its time with GO, and lost out by selling to easyJet.

I have not flown Aer Lingus for many years but my perception is that it is a bit like Norwegian: slightly up-market holiday routes and also offering “business class” to the USA. If airline reviews can be believed, and I am interpreting them correctly, then Aer Lingus falls midway between BA and a tour operator with extra legroom seats, and recline, plus better, IFE and service.

I would be interested to hear other readers comments on this.

[TominScotland]

FaroFlyer, not sure about your thinking here. If BA are looking to build LCC capacity, they could expand Vueling in Northern Europe, by establishing a hub in the UK, for example, in order to do so. After all, Vueling is part of IAG and not just of Iberia. As already noted on this site, EI is far more attractive to IAG because of a) its LHR slots and b) its potential to provide expanded access to the US from the UK regions and elsewhere in Europe, benefitting particularly from pre-clearance in Ireland.

[BigDog.]

EI report a strong set of results along with a second request to have the IAG buy-out approved.

The FT reports ….
Total revenue up 9% to €1.56bn, and operating profit grew 18 per cent to €72m. Aer Lingus also reported a jump in its net cash, to €545m

Meanwhile Colm Barrington chairman of the Irish airline, said that to accelerate its growth potential “it is the board’s strong belief that the company should now take the opportunity to combine with IAG”

[SimonS1]

I agree Tom. No reason in fact why it can’t be both. I could see a scenario in the future where Vueling picks up the leisure/bucket & space activities and the legacy airlines deal with the more premium hub and spoke/long haul stuff.

The EI acquisition seems to me to make a lot of sense for the reasons you mention – regional connections and pre-clearance. KLM has done pretty well with regional routes funnelling people into AMS for long haul connection, no reason why EI couldn’t do the same.

[transtraxman]

Just to keep us up to date with some facts…..

CAPA comes up with another analysis of Aer Lingus and its position, today, 25-2-15
“Aer Lingus grows FY operating profit, but needs further cost cuts. Meanwhile, IAG bid inches forward”.

http://centreforaviation.com/analysis/aer-lingus-grows-fy-operating-profit-but-needs-further-cost-cuts-meanwhile-iag-bid-inches-forward-211149

Buyimg Business Travel reported , yesterday, 24-2-15
“Aer Lingus reports 18% profit jump as passenger numbers soar”.

http://buyingbusinesstravel.com/news/2423817-aer-lingus-reports-18-profit-jump-passenger-numbers-soar

Airwise/Reuters reports today, 25-2-15
“Ireland Demands More Concessions On Aer Lingus Sale”.

http://news.airwise.com/story/view/1424820124.html

……so it looks like IAG is getting there little by little but will have to provide some sort of face saving concession.

[canucklad]

I’m going to swim against the tide here, I’ve read the Centre for aviation forum article and I’m more convinced than ever that (especially if I was an Irish citizen/resident ) that the Irish government should block the takeover ………
What’s good for EI’s shareholders isn’t necessarily going to be good for EI customers in the long term. Nor is it going to be good for UK customers wanting choice by avoiding our national carrier!

Here are some excerpts….
1 ) Asked to give a longer commitment by politicians at a parliamentary committee two weeks ago, IAG chief executive Wille Walsh explicitly ruled it out, adding “when I make an opening offer, my second offer is actually worse than the first one.”
2 )”We are a growing company… but every step further becomes more risky because we are the smallest competitor on the North Atlantic,” Mueller told journalists. “We cannot leave out chances of growth.”
3 )The Irish carrier said the results were helped by strong long-haul development with 28 per cent rise in long-haul passenger fare revenue
4 ) Short haul passenger numbers declined by 1.0%, while long haul passenger numbers grew by 20.6% as a result of new routes and higher frequencies. Traffic carried by Aer Lingus Regional, operated by Stobart Air (formerly Aer Arann) under a franchise arrangement and helping to feed the long haul network, grew by 18% to 1.3 million. The total number passengers flying with the Aer Lingus brand increased by 3.2% to 11.1 million.

So I’d say, if it aint broke, don’t fix it !!
Then I’d say ……You’ve got ask yourself, what’s in it for IAG’s dominant company, the business that most analysts will scrutinize to determine the success or failure of the overall group. ….. Once you’ve understood that, you can start to see the red flags to EI’s long term future appearing all over the place. And if you’re the Irish development /business secratery alarm bells would be going ogff after reading the 1st excerpt

Edited to add…..
If you look at EI strong numbers across BA’s treasured TATL stronghold, could IAG’s bid be seen as predatory and anti-competitive?

[AnthonyDunn]

@ canucklad – 25/02/2015 11:40 GMT

As I have opined previously, the IAG purchase of EI makes complete sense as a means of recapturing all of that lost UK regional traffic that now routinely heads off to AMS because there are so few regional connections into LHR. This would provide a substantial boost to DUB as a UK-oriented hub, particularly for westbound traffic. What this translates to is the likelihood of increased frequencies between the UK and the Emerald Isle – and not less.

[canucklad]

And AD, I suspect rather than recapturing it will just be redirected. With the consequence of the loss of flights from EDI-GLA-MAN -NCL into Heathrow, thus reducing competition further, especially with the demise of Little Red.

This will make non- BA connections cost prohibitive to us north of the Watford Gap. Unless of course if we’re prepared to hoik ourselves down to the Gulf.

EDIT—- If EI’s regular e-mail to me is anything to go by, they don’t need any further capacity, great flights, great prices, sadly they don’t fly to were I want to go !!

[Author]

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