Aer Lingus shares spiked yesterday after news emerged that International Airlines Group (IAG) attempted to buy the Irish airline. A statement from the board of Aer Lingus said that the offer, "fundamentally undervalues Aer Lingus and its attractive prospects."
IAG owns British Airways and a number of other world airlines. It commented on the proposed deal yesterday, saying: "There can be no certainty that any further proposal or offer will be forthcoming. A further statement will be made if and when appropriate."
Aer Lingus in 2014
The offer that IAG made valued Aer Lingus at more than €1bn, and 20 percent above the airline's value as reflected by its stock price at the start of the week.
It has been a bumper year for Ireland's airlines; both Aer Lingus and Ryanair have seen strong growth in 2014. The price of Aer Lingus shares rose sharply in November after the airline announced that the third quarter of this year was the company’s most profitable quarter since Celtic Tiger years. Its operating profit was up 19 percent on the same period in 2013.
This upward trend looks set to continue. If a takeover offer is going to be successful, it will need to reflect not just the company’s current value, but also recognise that it is likely to remain profitable in the coming years.
Easy-out for Ryanair
The fate of Aer Lingus will ultimately be decided by its two main shareholders - Ryanair has a 29 percent stake in the company, and the Irish Government owns a quarter.
Ryanair's interest in Aer Lingus has been subject to a number of legal challenges. British Courts have ruled that the company needs to sell all but 5 percent of its portion of the company - this decision is currently being appealed.
Given these legal issues, and the fact that Ryanair has seen massive growth in 2014, an increased offer could be very appealing to the low-cost carrier.
Smooth transition?
Aer Lingus and British Airways already collaborate on some levels - they have an agreement which allows passengers to transfer flights between the airlines while travelling on one ticket.
They also operate out of the same terminal in London Heathrow, British Airways’s home airport.
The Irish Government could have fears about letting a foreign firm take control of a company that plays an important role in transport in and out of the state. But given the profitability of Aer Lingus' main routes, it is unlikely that they would be scaled-back or altered.
