Ryanair made a €738m (£645m) cash offer for Irish rival Aer Lingus yesterday, just 18 months after its €1.5bn bid was rejected by the European Commission on competition grounds
The latest proposal – offering €1.40 per share, a 25 per cent premium on Friday's price – includes a commitment to double Aer Lingus's short-haul fleet to 66 aircraft, creating 1,000 new jobs for pilots, cabin crews and engineers over the next five years.
Ryanair says that the economic situation is now vastly different, and that the recent rush of acquisitions in the airline sector has rendered anti-competitive arguments obsolete. Buffeted by spiralling fuel costs and falling demand, more than 30 airlines have failed in the last 12 months. In Europe, a wave of takeover activity has left three main camps – one led by British Airways (BA), one by Lufthansa, and one by Air France/KLM. Ryanair wants to create a fourth, low-cost rival.
Michael Cawley, deputy chief executive, said: "The climate has fundamentally changed since last year. Consolidation in the industry has moved at a phenomenal pace, accelerated by the price of oil, and the best thing for Aer Lingus is to be with Ryanair in a strong national Irish champion."
The board of Aer Lingus rejected the offer, saying that it undervalues a business with "significant cash reserves and a robust long-term future". The company also says that since Ryanair is appealing against Brussels' rejection of the earlier plan, the new lower offer is "not capable of completion".
Aer Lingus is already nearly 30 per cent owned by Ryanair, another 25 per cent belongs to the Irish government, and 12 per cent to members of the employee share ownership trust, both of which resisted the last approach.
In June 2007 Ryanair's first approach to Aer Lingus was scuppered when Neelie Kroes, Europe's competition commissioner, ruled that the combined group would operate a near-monopoly at Dublin airport.
Ryanair says that recent mergers and acquisitions – such as Alitalia with Air One in Rome, and Lufthansa with Swiss Air in Zurich – put any potential Dublin dominance into the shade.
"All of these are happening because of market imperatives," Mr Cawley said. "The environment has changed dramatically, and there is a realisation that small regional airlines, and even some larger ones like Iberia, simply cannot survive on their own. So what chance is there for a company like Aer Lingus?"
Support from the government, which stands to make €188m on the deal, is likely to be the deciding factor. Out of all the airline takeovers considered by the European Commission in recent years, the only failure was the deal not backed by the host government – which was Ryanair's earlier approach to Aer Lingus. One City analyst said: "I wouldn't bet the farm on the deal, but it has a much better chance than last time."
Aer Lingus's shares have lost more than two-thirds of their value in the last two years, the company is forecasting losses for 2008 and 2009, and the load factor – the amount of capacity actually taken up by passengers – has dropped by 7 per cent in Aer's long-haul business, and almost 2 per cent in short haul. It has also suffered repeated threats of strike action, most recently last month over plans, subsequently rejected, to shed 1,300 jobs as part of the company's €74m cost-cutting package.
Ryanair's success is only a matter of time, says Gert Zonneveld, an analyst at Panmure Gordon. "Ryanair will not go away, it will keep going until it succeeds in buying Aer Lingus," he said.