Denis O'Brien: opposition

ENTRENCHED opposition to a Ryanair takeover of Aer Lingus has sharply
diminished in cabinet and ministers are keeping an 'open mind' on the proposal, senior government figures have told the Sunday Tribune.

This represents a marked change in position to the response to Ryanair's initial bid when ministers were unanimously opposed to it.

While there is no suggestion of government "rushing out to embrace" the Ryanair bid, senior figures said there was "an awful lot less opposition to it and a willingness to look at it" among ministers.

"There's been a sea-change in attitude from two years ago. The opposition to a Ryanair move has weakened. I wouldn't put it at 50-50 that the government will endorse the deal. It's more like 35-65. But two years ago it was 99-1 [against]," a senior figure said yesterday.

Another senior figure said while there was a "wariness" of Ryanair boss Michael O'Leary in government, the possibility that a Ryanair bid might end up being "the better of two bad choices" couldn't be ruled out. There is understood to be an acceptance at cabinet level that Aer Lingus cannot continue as an independent, standalone airline – given the consolidation in a sector increasingly dominated by a small number of mega-carriers – and would have to find a strategic partner.

"There might be a view that, 'Isn't it better to find that partner at home?'" one source said, adding there would be some "enormous benefits" to having "one strong Irish airline group".

The big stumbling block to any cabinet backing of the takeover is the current government 'two airline' policy for Ireland. The worry would be that if Ryanair and Aer Lingus were under the same ownership, it would lead to higher air fares into and out of Ireland and, more particularly, the new entity would have a dominant position in Dublin Airport, leaving the Dublin Airport Authority (DAA) in a weakened position.

However, government figures conceded that with the demise of so many of the traditional flag carriers across Europe, the 'two airline' policy is being overtaken by events.

There is also a realisation in the cabinet that, although Aer Lingus needs a strategic partner to survive and prosper,

there is "not a queue of international airlines" looking to buy it and Ryanair may well prove its own realistic suitor.

O'Leary has written to all government ministers offering to meet and brief them on "the enormous benefits" of having "one strong Irish airline group". The government holds a 25% shareholding in Aer Lingus, giving it a pivotal stake in any takeover battle.

The likely windfall of €200m-€300m to the government from any takeover of Aer Lingus will not influence the cabinet's thinking, even in the current difficult budgetary environment. Ireland's "strategic interests" will be the sole priority, sources said.

In that context, the government will press Ryanair for guarantees and assurances about the position of Dublin Airport before any final consideration is given to its €748m bid. Ryanair and Aer Lingus currently control about 83% of all short-haul seats leaving Ireland, so any new entity would virtually become the only large-scale customer of the DAA.

The Ryanair deal is facing strong opposition from unions – despite O'Leary's promise that he will recognise the unions at Aer Lingus. Another shareholder, businessman Denis O'Brien – who owns more than 2% of Aer Lingus – is understood to be unlikely to back the bid. O'Brien has previously voiced objection to the idea of reducing competition between the two airlines.

Meanwhile, the Sunday Tribune has seen a document that makes it clear that Air France-KLM, Europe's biggest airline, is not interested in tabling a rival bid for Aer Lingus.