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BA owner near deal for Aer Lingus

The owner of British Airways today appeared to be on the brink of a major breakthrough in its £1 billion pursuit of Dublin-based carrier Aer Lingus.

A third and improved proposal from International Airlines Group (IAG) has reportedly won the backing of the Irish carrier's board.

IAG still requires the support of the Irish government, which holds a 25% stake in Aer Lingus and will want reassurances from the BA and Iberia owner over its plans for the key Dublin to Heathrow route.

Low-cost airline Ryanair, which owns just under 30% of Aer Lingus following a series of failed takeover attempts, may be tempted to sell at the new offer price of 2.50 euros a share, equivalent to 1.33 billion euros (£994 million).

It is expected that IAG and Aer Lingus will make statements to the London Stock Exchange on Monday. The Aer Lingus board rejected previous bids from IAG worth 2.30 and 2.40 euros a share.

Aer Lingus is well known to IAG boss Willie Walsh as he ran the airline between 2001 and 2005 before taking the helm at British Airways.

IAG's interest in Aer Lingus stems from its desire for additional Heathrow runway slots as well as the opportunity to deliver more industry cost efficiencies.

Aer Lingus is the fourth busiest operator at London's Heathrow behind British Airways, Lufthansa and Virgin Atlantic.

Its fortunes have improved in recent months and under chief executive Christoph Mueller it reported the airline's strongest summer trading performance since the financial crisis, with operating profits up 19% to 112.9 million euros (£88.5 million) in the quarter to September 30.

The airline carried nearly a quarter more long-haul passengers in the period than a year earlier while increasing its revenue per seat.

It plans to launch a new Dublin to Washington service in May and will also increase services on existing transatlantic routes.

IAG was formed from the merger of British Airways and Iberia in 2011.

It has around 430 aircraft and employs more than 60,000 people. A restructuring programme at the previously loss-making Iberia has seen 2,500 staff leave the airline under a voluntary redundancy programme.

IAG recently forecast it will make a bigger than expected profit for 2014, stepping up pressure on rivals Air France-KLM and Lufthansa.

Ryanair has been frustrated in its attempts to buy Aer Lingus and has been told by UK competition authorities to sell down its stake because it potentially distorted the market for flights between Ireland and Britain.

Meanwhile, Ireland's deputy prime minister has warned that p rotecting Ireland's air links with Europe and the US is of vital importance if the deal is to go through.

Tanaiste Joan Burton said retaining valuable slots in Heathrow is critically important for the Irish Government and for the country in terms of inward investment, exports, business and tourism.

"What we will want to do as a Government, and what's absolutely important, is to protect these slots and the connections of direct flights in and out of Ireland," she told RTE Radio.

Ms Burton refused to be drawn on whether the deal hinges on a guarantee period during which the slots would be retained.

But she noted the importance of Ireland as a transit hub for people flying to the US and using pre-clearance facilities in Dublin and Shannon.

"It's very, very important. That will be absolutely foremost in the Government's mind in terms of Aer Lingus," she said.

It is understood Irish cabinet ministers will discuss the future of Aer Lingus during its weekly meeting on Tuesday.

Other issues said to be key factors in the Irish Government's position on a sale include job security for Aer Lingus workers in Dublin, Shannon and Cork airports.

The prospect of a deal also sparked demands from the main opposition party in Ireland for it to be stopped.

Fianna Fail transport spokesman Timmy Dooley said the sale must be blocked to protect Ireland's strategic national interests.

"The fallout from any sale of the airline is being dramatically underplayed," he said.

"Any changes to Aer Lingus' current operations could have a significant impact on Dublin, Cork and Shannon airports; stymying their links with Heathrow and restricting access to other countries which are served via Heathrow.

"Not only are the Heathrow links under threat if a sale proceeds, there are also major concerns about possible job losses. IAG's takeover of Iberia resulted in 4,500 redundancies; if the same scale was applied to the Aer Lingus situation, around 1,000 people could be let go."

Currently, Aer Lingus directly employs 3,900 people, mostly in Dublin, with 2,100 of these described as ground staff in areas such as clerical, operative and back office roles.

Impact trade union, which represents cabin crew, pilots and some ground staff at Aer Lingus, revealed it has written to the Government over its concerns about the planned takeover.

National secretary Matt Staunton warned 1,200 jobs were at risk in the deal.

"It also represents a significant risk to the security of employment for Irish workers employed directly or indirectly by Aer Lingus" he said.

Mr Staunton urged the Government to consider keeping a holding in the airline as it serves to maintain strong links with EU, US and other critical trading partners.

Impact also warned IAG would make greater money out of the Heathrow slots if it opened them to US flights rather than the London-Dublin market.

"Over one million passengers per year travel from UK provincial airports to use Dublin Terminal 2 as a hub to the US. This is lucrative long haul business that British Airways/IAG would like to reclaim," Mr Staunton said.

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