O’Leary launched another ‘takeover’ bid for aer lingus. He has offered 1.30 a share for the governments stake. They have previously said that they they wouldn’t sell for less than 1 euro a share, so are immediately embarassed
The genius is that if his bid is successful, he will get his hands on aer lingus (plus its reputed 700 million cash reserve) for a song. The 700 million would more than compensate him for the money spent acquiring it.
If his bid is unsuccessful, he has put a floor on the ‘value’ of the aer lingus shares and any other buyer (and there are reputed to be a few in the wings ) is going have to stump up at least that amount for the privilage of buying aer lingus. O’Leary would probably unload his aer lingus shares at that price, making a tidy sum.
Valuing a company is a little bit more complicated than that. What about the liability side of the balance sheet? What about maintainable profits, etc?
Its not really about the balance sheet really. Even though, I suspect that O’Leary has studied the balance sheet thoroughly - thats why he’s been chasing Aer Lingus for years. (Strategic assets include, landing slots at Heathrow, landing slots in the US and I am sure that there are other goodies wrapped up in the Aer Lingus package).
The point is that, with this bid, he either gets his hands on Aer Lingus or he may manage to offload his shares at an ‘enhanced’ price.
Firstly, the reason he wants it is so that he will have a monopoly into Ireland.
Second, I dont see how his bid, if unsuccesful, would put a floor on the share price…I dont get that one…none of his previous bids have done so. Also, as for others window shopping, I would guess that Ryanair’s primary goal is to make sure no one else gets their hands on Aer Lingus.
I reckon the strategic reason he wants Aer Lingus is because it allows Aer Lingus to expand into the North American market. He would be quite happy (I suspect) to hive off part of the company to Aer Arann for example, to fulfill competition rules.
His bid may also be designed to flush out other interested parties, who would have to top his bid to get their hands on Aer Lingus. This would allow him to sell his shares at a greater price than they were valued at last week.
If all this comes to naught, he’s had a laugh at Leo Varadkars expense, and has had some publicity, without costing him anything.
I think some Irish people over estimate the importance of this little backwater as a market. Does O’Leary not have much bigger fish to fry than a monopoly in Ireland?
I think a monopoly in a country with four million people with no land bridge to anywhere would be significant.
Dublin to London Heathrow is the fifth largest airline route in Europe by passenger volume; and is the largest route out of Heathrow, within Europe; and is also the largest international route within Europe (ie internal routes such as Barcelona Madrid are the only ones that exceed it).
So a little backwater…no importance…some people completely overestimate it.
Nobody else will bid on aer lingus IMHO, except Denis O’Brien, - why on earth would any real airline pick a fight with O’leary in his backyard. Easyjet did and it nearly killed them. Denis might because he is a diva.
Aer Lingus pension deficit will be part of the deal and O’Leary will get Aer Lingus.
He will promise jobs and growth. He can use Dublin as a base for US and Aer Lingus as the brand, strategy is simple:
Fly each a/c on average 3 times a day instead of current 2 for all other transatlantics
Use Ryanair and Aer Lingus to feed passengers, Aer Lingus from higher end locations
But the risk is:
Chapter 11 competitors in the US. The US’s exceptionally generous corporate bankruptcy regime has allowed bankrupt airlines to run around for years after they should have been shot. Also US airlines benefit hugely from city subsidies to build terminals etc.
If he doesn’t get Aer Lingus, and Denis buy’s it - Will Denis come and live in Ireland?
But if O’Leary doesn’t get Aer Lingus then he will sell his shares to whoever pays and will proceed to put Aer Lingus to the sword.
Ryanair couldn’t use Heathrow, Heathrow is a scheduling mess, with approx. 40% delays. Dublin - London is still busiest route in Europe by some distance.
It is the busiest route because of price. Price elasticity of demand in air travel is never ending, after 16 months of intro period a city pair (almost any city pair) in europe will fill planes at v. low prices.
Ryanair is a simple model, not complex at all, Low cost always wins.
The benefits to aer lingus of cheaper overhead, cheaper planes, cheaper (and better maintenance) deals will be v. large
But Heathrow slots are of no interest to O’Leary, he will be happy to fly in and out of Heathrow for ever using Aer Lingus
Good theory on the transatlantic, but I cant possibly imagine O’Brien getting involved in this…apart from anything else, Ryanair has a blocking stake…Also, can you imagine a Fine Gael Irish govt selling its stake to O’Brien after the ESAT fiasco? Surely they couldnt? Could they…
Personally I avoid LHR like the plague. I haven’t been there in 2 years now thankfully, despite clocking up a few thousand air miles a year. I’d much prefer to use MAN, CDG or AMS if I have to make a connection.
Sometimes the customer is wrong but would pay extra to be lied to. But hey, as displayed by the bust, denial is a luxury that some can afford to nurture.
) is going have to stump up at least that amount for the privilage of buying aer lingus. O’Leary would probably unload his aer lingus shares at that price, making a tidy sum.