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Company Watch - Aer Lingus.

Oct 9, 2006

Aer Lingus Job Cuts 'Wild Speculation' - Ryanair. Ryanair described as "wild speculation" a newspaper report that said the carrier planned to cut 1,000 jobs at Irish operator Aer Lingus if its takeover bid succeeds. Europe's biggest low-cost operator made the surprise cash offer for Aer Lingus on Thursday in a deal that values its target at EUR1.48 billion euros (USD$1.86 billion) -- 27 percent above the price at which its flotation was launched last week. Ryanair said it planned to retain Aer Lingus's staff and management and for Aer Lingus to maintain its current long and short-haul business model -- but that Ryanair would help it to drive down costs. In turn, Ryanair would benefit from Aer Lingus's superior earnings yield, which is better than the returns Ryanair can get on its cash deposits. Oct 8, 2006

Ryanair faces opposition to the deal from Aer Lingus management, unions and the Irish government, which has a 28 percent stake in the carrier. Shares in Aer Lingus climbed on Friday as investors speculated the budget carrier would have to raise its surprise offer for the group given the fierce objections to the deal. Analysts have said the deal seems attractive for shareholders in Aer Lingus, which launched its initial public offering at 2.20 euros a share last week -- 60 cents below Ryanair's bid -- but the advantages for Ryanair were less clear. Oct 8, 2006

The Irish Independent newspaper reported on Saturday that Ryanair boss Michael O'Leary would immediately move to sack 1,000 Aer Lingus employees -- just under a third of its workforce -- if the takeover succeeded. "It is understood the move is part of a detailed rationalization plan which Ryanair has prepared and which it believes will reduce Aer Lingus's annual EUR800 million (USD$1 billion) costs by EUR150 million (USD$189 million)," the paper said. The paper said Ryanair would begin by outsourcing Aer Lingus' catering department, which employs about 200 people, and would then look to cutting most of the staff at the company's 100-strong American operations. It did not say where it got the information. "All that is just wild speculation -- nothing more," Ryanair responded in a brief statement. "Ryanair's offer confirms its intention to lower Aer Lingus' short haul fares by at least 10 percent over the next 4 years and to reducing Aer Lingus' fuel surcharge," it added. O'Leary said on Thursday he planned to continue a rationalization plan already underway at Aer Lingus if Ryanair's offer was successful. Oct 8, 2006

Ryanair Aer Lingus deal will ombine a low-cost airline with a legacy carrier addresses the weaknesses of the two business models. Legacy carriers struggle to compete domestically because of higher costs, but low-cost airlines struggle with long-haul service, said Klaskin. Airline consultant Robert Mann said these combinations could take the form of full-blown mergers, but more modest partnerships, such as Southwest Airlines' alliance with ATA Airlines, would be easier to carry out. But there will be cultural clashes. Although both are based in Ireland, Aer Lingus and Ryanair would be uncomfortable bedfellows, said Randy Babbitt, chief executive of aviation advisory firm Eclat Consulting. "It would be a very difficult cultural merger," he said. Oct 6, 2006

Ryanair is an aggressive, no-frills carrier, while Aer Lingus is a legacy national carrier that has strong links to the Irish government, its largest shareholder. Evidence that there will be problems surfaced on Friday, when Irish opposition politicians and union officials decried the merger proposal. Some industry experts also have doubts about the rationale of merging low-cost and legacy carriers. "I don't really see that model would work," said Geert Boven, acting chief executive of Abu Dhabi-based Etihad Airways. "It's two completely different business models." Oct 6, 2006

Ryanair Aer Lingus Bid May Serve As Industry Model. Ryanair's USD$1.9 billion bid for Aer Lingus, which would pair a low-cost carrier with a traditional airline, could represent the model for consolidation in the industry, experts say. Merger speculation, especially in the United States, has been rampant recently as the financial performance of airlines improves. And with over 260 carriers in the world, the industry is seen as unwieldy and ripe for thinning. Although the Aer Lingus board has rejected the bid made on Thursday as undervalued, Ryanair's plan would link a rapidly growing point-to-point carrier with a long-haul national carrier. Traditional carriers have for years been losing domestic or short-haul market share to low-cost carriers and the trend is expected to continue. This has led many legacy carriers, such as United Airlines and American Airlines to expand international routes, which are less contested, but often more complex to operate. Oct 6, 2006

Aer Lingus, and its employee trust which holds around 15 percent of the group, were not available to comment and only issued a brief statement over four hours after Ryanair announced its bid, saying it was considering the announcement and would make another statement in due course. Meanwhile the airline's main union, which opposed privatization, said the takeover would be bad for Ireland. Ryanair does not negotiate with unions in its own business but said Aer Lingus would be able to operate as at present. Oct 5, 2006

Exane BNP analyst Nick van den Brul said the Ryanair-Aer Lingus deal could get cleared by competition regulators although the groups may have to sacrifice a few routes. Van den Brul said investors would also want to be reassured the deal would not make Ryanair less profitable given Aer Lingus's lower margins and added some might be disappointed if a deal dashed hopes of Ryanair returning cash to shareholders. Oct 5, 2006

Ryanair Makes USD$1.9 Bln Bid For Aer Lingus. Ryanair, Europe's biggest budget airline, launched a surprise bid for Aer Lingus on Thursday, valuing the former Irish state carrier -- which listed just four days ago -- at EUR1.48 billion euros (USD$1.9 billion). Ryanair Chief Executive Michael O'Leary, who has long said he has no interest in the long-haul market, said Ryanair and Aer Lingus would be run as separate businesses. Oct 5, 2006

Ryanair revealed it had already bought 16 percent of Aer Lingus in the market and would offer 2.80 euros a share in cash for the rest of the group -- a 27 percent premium to Aer Lingus's 2.20 euros per share flotation price. The shares closed on Wednesday at 2.51 euros. The budget airline would retain Aer Lingus's staff and management and Aer Lingus would keep its own branding and continue to operate its mixed long-haul and short-haul business -- but Ryanair said it would help it drive down costs. In turn Ryanair would benefit from Aer Lingus's superior earnings yield, which is better than the returns Ryanair can currently get on its cash deposits. Oct 5, 2006

The Irish government said it would not sell its remaining 28 percent stake but O'Leary told reporters that while he was targeting at least a 50.1 percent controlling stake he would be happy to have the government, with whom he has often clashed in the past, as a minority shareholder. Only if Ryanair can get a sizeable holding in Aer Lingus would it delist the company, he added. Under takeover rules his company can continue to buy in the open market -- at not more than the offer price -- until it reaches a stake of just under 30 percent. O'Leary said he did not expect to face competition issues over the deal and that Ryanair and Aer Lingus's networks only overlapped on 17 of their combined 500 routes. Oct 5, 2006

The Ryanair-Aer Lingus takeover would create an airline with about 50 million passengers annually, capable of competing with large European airline alliances and groupings like Air France-KLM and Lufthansa-SAS-Swiss. Aer Lingus -- which had a valuation at listing of about 12.7 times earnings per share for calendar 2006, broadly in line with British Airways -- went to the market to raise money to help it with a planned EUR2 billion (USD$2.54 billion) fleet expansion, which includes upgrading its long-haul operation. O'Leary said he would want Aer Lingus to continue with that aim and would want the former state operator to upgrade that service so it included beds and other high-end services. Oct 5, 2006

Ireland Outlines Need For Aer Lingus Blocking Stake. Ireland's finance minister said in a newspaper interview published on Monday it was important for the government to keep a blocking minority stake in Aer Lingus to show its commitment to the airline. Brian Cowen said the move was to prevent a foreign takeover of the Irish state carrier, which floated last week. The FT said Aer Lingus' 23 landing slots at London's Heathrow Airport were a key part of its development. The carrier is still seen as Ireland's national airline despite a reduction in the state's shareholding from 85 percent to 34.8 percent last week, the newspaper reported. Cowen told the Financial Times the government's decision to maintain its stake was also to prevent the business being taken over by foreign interests. The newspaper said the government's stake would fall to just under 28 percent as it sells a further 6.5 percent over the coming weeks. Aer Lingus priced its initial public offering at 2.20 euros a share last Wednesday, valuing the group at EUR1.13 billion euros (USD$1.43 billion). Oct 2, 2006

Ryanair said its buying power would give Aer Lingus added negotiating strength to buy new planes either from Ryanair's preferred supplier Boeing or from Aer Lingus's usual supplier Airbus. Oct 5, 2006

Editor: Aram Gesar, eMail: edit@AirGuideOnline.com

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Oct 2, 2006
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