Aer Lingus may be one of the leanest flag carriers in Europe but its higher costs, unionised workers, long-haul routes and a hostile government shareholder hardly make it a natural fit for Ryanair.

O'Leary says it would be better to use the airline's 2bn cash mountain to buy Aer Lingus than leave the money in the bank. Is this an admission that Ryanair, the upstart that aims to carry more than 80 million passengers a year by 2012, has lost the ability to grow under its own steam?

That's certainly not the message the Ryanair boss has been giving to the market.

Just over a week ago he told investors in New York to expect profits of 335m after tax in the year to next March.

Despite the airline's breakneck growth in recent years, O'Leary assured his audience that Ryanair was still only scratching the surface, pointing to new bases in Bremen and Marseille and aircraft purchases that will bring the fleet to 281 Boeing 737s.

The upbeat message was repeated last week by EasyJet, the other contender for Europe's low-cost crown. It reported that it would beat expectations of 40%-50% profit growth in the year to the end of September as it carries more passengers at higher fares.

On paper at least, the bid for Aer Lingus makes sense, says John Sheehan, head of research at NCB Stockbrokers. For its 1.5bn, he notes that Ryanair would be getting an airline sitting on a cash pile of 1.1bn after banking the money raised at its stock market flotation ten days ago. It also owns 17 of its aircraft outright, most of them less than three years old. And it controls lucrative slots at Heathrow, where Aer Lingus is the fourth-biggest operator.

"Financially, the transaction would offer scope for significant synergies, even running the businesses as separate units, " says Sheehan. "Obvious areas would be aircraft procurement and maintenance, airport charges and marketing and distribution."

He estimates that if O'Leary can pull it off at 2.80 a share, an outcome he admits is unlikely, the deal would add 6% to Ryanair earnings in the current year and "would drive the stock price higher if completed and integrated successfully".

But there is no doubt that, having packaged Ryanair as a low-cost pure play, ruthlessly focussed on growing organically, O'Leary has unnerved investors by pouncing on Aer Lingus.

According to Chris Reid of Deutsche Bank in London:

"Bulls of Ryanair will argue this deal gives the company option value and financially it may be possible to justify, but we would say if the growth in short-haul is so good, why is a highly-rated, pure-play, lowcost carrier bothering to move into the long-haul market where companies have half the rating?"

Andrew Lobbenberg of ABN Amro, a long-time sceptic on the Ryanair story, says the bid is just another of the airline's legendary publicity stunts, with O'Leary flexing muscle to gain political advantage.

But the Ryanair boss may have gone too far this time and, whatever happens, Lobbenberg believes O'Leary has shot himself in the foot. "If the deal fails to proceeds, investors could worry about the transaction and exit costs;

if the deal proceeds, regardless of long-term merit, investors could rightly fret over execution risk."

THE IRISH HANG-UP BYpouncing on Aer Lingus barely a week after it emerged from state ownership, Michael O'Leary has kicked new life into an old question: why is one of Europe's biggest airlines so obsessed with the tiny Irish market?

With 17 bases around Europe serving 42 million passengers a year, Ryanair outgrew Ireland a long time ago. Yet O'Leary devotes enormous time and resources to protecting Ryanair's patch in Ireland. His battles with Dublin airport are legendary while Ryanair has ruthlessly squeezed out rivals such as EasyJet when they enter Irish airspace. Now O'Leary wants to buy the national carrier.

The answers are to be found in the copious information that Ryanair is required to "le with US stock exchange watchdogs. These "lings show that, despite rapid expansion in Europe, Ireland remains a hugely pro"table source of business for Ryanair. The most recent "ling shows that traf"c across the Irish Sea accounted for over a quarter of its earnings in the year to March 2005.

Aviation analysts believe that, if Ryanair manages to corner the home market completely by gaining control of Aer Lingus, it will be able to boost these earnings considerably.

Ryanair claims that it competes head-on with Aer Lingus on only 17 routes. But this ignores the huge overlap where both airlines serve the same cities through different airports. On this measure, Goldman Sachs estimates Ryanair is breathing down Aer Lingus's neck on half of its shorthaul routes.

According to Andrew Lobbenberg of ABN Amro: "In what we see as the unlikely event that Ryanair were to get the deal through, it would gain a highly dominant position on routes to and from Ireland, allowing monopoly pro"ts from these routes to cross-subsidise competition from other carriers in Europe. Ryanair would be in a position to boss around the Dublin Airport Authority, and indeed other airports in Ireland, and would have considerable in"uence over the Irish government."