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Ryanair today announced a new bid for its Irish rival Aer Lingus with cash value of €784 million. It already owns almost 30 per cent of the former State airline.
Ryanair announced its intention to make a Cash Offer of €1.40 per Aer Lingus Share for 100 per cent. of the issued and to be issued share capital of Aer Lingus. Ryanair intends to make this offer through its wholly-owned subsidiary, Coinside. Europe's biggest low-fares airline, already owns approximately 29.82 per cent. of the current issued share capital of Aer Lingus and expects to accept the Cash Offer in respect of these shares.
Ryanair's first bid was in Oct 2006 at €2.80 a-share. It was rejection by the Irish Government, employee shareholders and later, the European Commission.
Ryanair proposes to merge the two airlines into what it termed one strong Irish airline group under common ownership. Similar to previous European airline mergers such as Air France/KLM and Lufthansa/Swiss, both airlines will operate as separate companies, with distinctive brands, thereby preserving the best features of both, including Ryanair’s low fare, high punctuality operations, and Aer Lingus’ special brand, service culture as well as its long haul operations.
Benefits for Aer Lingus Shareholders
The Offer values the entire issued ordinary share capital of Aer Lingus at approximately €748 million. Key features of the Offer are:
This is an all cash offer
It represents a premium of approximately 28 per cent. over the average Closing Price (€1.09) of an Aer Lingus share for the 30 days to 28 November 2008 (being the last Business Day prior to the date of this announcement)
It represents a premium of approximately 25 per cent. over the Closing Price (€1.12) of an Aer Lingus Share on 28 November 2008
Benefits for Aer Lingus and its Employees according to Ryanair
Ryanair has requested an early meeting with the Chairman and Board representatives of Aer Lingus, as well as the ESOT trustees, to explain the benefits Ryanair believes will flow to the Aer Lingus business and its employees from this proposed merger, including:
The Aer Lingus ESOT and employee shareholders will receive over €137 million in cash if the Offer is successful
A commitment to double the size of the Aer Lingus short haul fleet, from 33 to 66 aircraft over the next 5 years, thereby creating 1,000 new jobs in Aer Lingus during that period
Better promotion prospects for Aer Lingus employees through this rapid growth
Improved job security as part of one strong Irish airline group
Aer Lingus employees will join one of Europe’s Big Four airline groups (Air France/KLM, Lufthansa/Swiss, British Airways Group and Aer Lingus/Ryanair)
Aer Lingus employees join an Irish national champion with pan-European network
Aer Lingus to remain a separate company and retain its special brand like KLM and Swiss precedents
The Aer Lingus Chairman will be invited to join the Board of Ryanair
Benefits for Irish Government and Consumers
Ryanair has requested early meetings with the Minister for Finance and the Minister for Transport to highlight the benefits Ryanair believes will flow from this merger for the Irish Government and consumers including:
Ireland will establish one of Europe’s “Big Four” airlines which will be financially strong, as well as managed and headquartered in Dublin
Securing Aer Lingus’ special brand, Heathrow slots and connectivity for Ireland
Doubling Aer Lingus’ short haul fleet to 66 aircraft and creating 1,000 associated new jobs in Aer Lingus over a 5 year period
Irish Government will receive over €188 million in cash if the Offer is successful, which will make a valuable contribution towards current budget spending in areas such as health and education
Ryanair’s commitment to growth and lower fares will help the government combat recent declines in Irish traffic and tourism
Merged Irish group will have the cleanest, most fuel efficient fleet of Europe’s Big Four airline groups
Ryanair’s commitment to cut Aer Lingus’ average short haul fares (€94 in 2007) by 5% for 3 years, generating an approx €40 million p.a. saving for consumers
Ryanair’s commitment to eliminate Aer Lingus’ long haul fuel surcharges on completion, generating an approx €100 million p.a. saving for consumers
Improve Aer Lingus’ on-time performance to Ryanair’s levels
Ryanair secures the Cork and Dublin slots at Heathrow, as well as Heathrow connectivity at lower fares for Ireland
Ryanair will upgrade and develop Aer Lingus’ long haul product and service
Ryanair says it believes this Cash Offer provides attractive and certain value for Aer Lingus shareholders. Ryanair believes the Cash Offer is generous in the context of:
The collapse in Aer Lingus’ share price from a high of over €3.00 in December 2006 to less than €1.00 in November 2008
Aer Lingus’ load factors which have declined by over 7% (long haul) and almost 2% (short haul) in 2008
Aer Lingus’ forecast operating losses for 2008 and again in 2009
The current airline industry crisis amid the deepening economic recession
Declining equity prices
In the opinion of Ryanair, Aer Lingus’ management have failed to deliver on the reasons they articulated in their 2006 defence documents for remaining an independent airline. Since 2006, when Aer Lingus rejected Ryanair’s €2.80 offer, they have:
Spent over €24 million on its defence of Ryanair’s 2006 €2.80 offer
Allowed its director’s basic annual fee to almost treble from €17,500 to €45,000
Allowed its non-executive Chairman’s basic annual fee to increase fivefold from €35,000 to €175,000
Increased short haul fares by 7% to €94
Increased fuel surcharges 5 times to a current average of €75 per sector
Suffered repeated strike threats in April 2006, February, August and November 2007, February and November 2008
Closed its Shannon base in December 2007
Opened a Belfast base in December 2007 which is performing poorly
Ordered new A330 aircraft in 2007 (at the top of the cycle), but then deferred an A330 delivery in November 2008
Suffered short haul and long haul load factor declines in 2008
Forecast operating losses of €20 million in 2008 and another operating loss for 2009
Ryanair said it believes that Aer Lingus is an isolated, uncompetitive, loss making EU flag carrier which has been bypassed by accelerating EU wide airline consolidation. Ryanair believes that Aer Lingus needs to find a strong airline partner to secure its future. Over the past two years, the trading environment for all European airlines has deteriorated dramatically as a result of high oil prices and the global recession. This has triggered a wave of EU airline closures and failures (in all, over 30 airlines have failed this year). In response, pan-European airline consolidation has accelerated as Europe sees the emergence of three large mega-carriers, Air France, British Airways and Lufthansa, and the rapid growth of Ryanair, Europe’s largest low fares airline. So far this year, the following consolidations have been either announced, proposed or are being considered:
Easyjet – GB Airways
ClickAir – Vueling – Iberia
Alitalia – Air One
Lufthansa – SN Brussels
Air France/KLM – VLM
Air France/KLM – Martinair (proposed)
Lufthansa – BMI (proposed)
Lufthansa – Austrian (proposed)
British Airways – Iberia (being considered)
Air France/KLM or Lufthansa – Alitalia/AirOne (being considered)
Ryanair says that today’s Offer provides a financially robust partner, in one strong Irish airline group, within which Aer Lingus will retain its separate brand as well as secure the Heathrow slots and connectivity for Ireland at lower fares.
The Cash Offer, which will be made by Coinside, a wholly owned subsidiary of Ryanair, will be subject to certain conditions set out in Appendix I, including, amongst other conditions, the acceptance by Aer Lingus Shareholders holding not less than 90 per cent. of the issued and to be issued share capital of Aer Lingus (or such lower percentage as Ryanair may determine, subject always to the Takeover Rules), the passing of the Ryanair Shareholder Resolutions at an EGM to be held as soon as reasonably practicable to approve the Cash Offer, and Ryanair obtaining EU Commission clearance or (as the case may be) Irish and other applicable EU member state competition law clearance for the combination of Ryanair and Aer Lingus.
Commenting on the Offer, Ryanair’s Michael O’Leary said: “This proposed merger of Ryanair and Aer Lingus will form one Irish airline group with the financial strength to compete with Europe’s 3 major airline groups - Air France, British Airways and Lufthansa.
The world has changed dramatically over the past two years, as high oil prices and deep recession have caused a flood of airline bankruptcies, consolidations and capacity cutbacks. Aer Lingus, as a small, stand alone, regional airline has been marginalised and bypassed as most other EU flag carriers consolidate.
Over the past 2 years, the management of Aer Lingus have failed its shareholders, customers and staff. Its shares have fallen from over €3, to less than €1 recently. Fares and fuel surcharge increases have cost consumers over €140m p.a. and repeated restructurings have led to pay cuts and job losses with no substantial benefit as operating costs per passenger have risen by 18% in just 2 years. Aer Lingus is now suffering load factor declines, and has recently announced capacity reductions and forecast operating losses in 2008 and again in 2009.
Ryanair’s merger proposal today offers Ireland a better future by:-
- delivering over €325m in cash to the Irish government, the ESOT and Aer Lingus employees
- guaranteeing that Aer Lingus will remain a separate company with a special brand
- securing Heathrow slots and their connectivity for Ireland at lower fares
- doubling of Aer Lingus’ short haul fleet to 66 aircraft within 5 years, creating over 1000 associated new jobs in Aer Lingus
- cutting Aer Lingus’ short haul fares by 5% for 3 years, saving consumers over €40m annually
- removing Aer Lingus’ long haul fuel surcharges, saving consumers over €100m annually
- creating an Irish national champion in the airline sector with a growing pan-European and transatlantic network
- assuring Aer Lingus’ future in one of the EU’s Big Four airline groups (Air France/KLM, British Airways Group, Lufthansa/Swiss & Aer Lingus/Ryanair)
We have today requested early meetings with the Irish Ministers for Finance and Transport, the Board of Aer Lingus, and Aer Lingus’s ESOT trustees to highlight the benefits for Ireland and all other stakeholders of this comprehensive and valuable merger proposal.”