The time could now be right to allow airlines to merge

Dec 3 2008 by Tony McDonough, Liverpool Daily Post

WHEN Ryanair made a £1bn bid for rival Irish carrier Aer Lingus two years ago, the offer was swiftly rejected by the board.

Even if they had welcomed the approach, the feeling at the time was that European competition authorities would never allow such a merger to happen.

However, the world has changed significantly since then. The tsunami of the credit crunch and the subsequent economic downturn has hit the aviation sector particularly hard.

Some airlines have not survived, with casualties including business class carrier Silverjet as well as EuroManx, Zoom and Maxjet. Italy’s flag carrier, Alitalia, is also fighting for survival.

Governments and the EU now recognise that the economic climate we are now living in means some of the rigid free market rules we have been living by may have to be bent a little.

This could pave the way for a major consolidation in the airline sector. Ryanair may find that the Irish government, which owns 25.1% of Aer Lingus, is more willing to listen to its proposals, even though the latest bid is worth only half of the first one.

Ryanair, Liverpool John Lennon Airport’s biggest carrier with more than 40 routes, said last night it was seeking to meet with Aer Lingus shareholders, despite the board’s swift rejection of the all-cash offer of 1.40 euros per share

A Ryanair spokeswoman said the carrier was seeking meetings with the Irish government and other Aer Lingus shareholders, and one analyst said a deal might benefit the Irish airline industry in the long term.

A finance ministry spokesman said on Tuesday no meeting had been scheduled "at this time" with minister Brian Lenihan.

"We would expect that, when Ryanair make their formal bid, which they have not yet done, they will request a meeting with us," a transport ministry spokeswoman said separately.

Analysts believe a recent spate of airline mergers means the chances of success would be greater this time, even if a takeover would still prove highly contentious in Ireland.

Friends First Chief Economist Jim Power said an open mind was needed on the new offer.

"We must not allow ideological blind spots or past enmities to get in the way of a proposal that could be in the best long-term interests of the Irish airline industry and of the Irish economy," he said.

British Airways could also see a more relaxed approach to mergers help smooth the way as it enters talks with Australian carrier Qantas, with a view to forming what would be a mighty alliance. Yesterday’s revelation that talks were taking place pushed BA’s shares up 14%.

tonymcdonough