It's been a bumpy ride for new Aer Lingus chief executive Christoph Mueller since taking over the controls from Dermot Mannion last year. Mueller has been battling with unions on cost cuts, a slump in demand for travel and has seen his finance chief quit suddenly. Now the countdown clock banning bitter rival, and largest shareholder, Ryanair launching a third takeover attempt in less than four years is running down.

Under Irish Takeover Panel rules Ryanair is blocked from making another swoop on Aer Lingus until the anniversary of the withdrawal of its last formal offer. That bar ends on 29 January.

While Ryanair said this week that a third takeover is "unlikely" without the blessing of the government, which retains a 25% stake in Aer Lingus, insiders say it must be tempting for chief executive Michael O'Leary to have another go given the difficulties being faced by the former state-owned carrier. Aer Lingus declined to comment on the prospect of a fresh bid when the Takeover Panel ban runs out. However, in each of the previous bids, Aer Lingus has been in a better position to square off against the unwanted suitor.

"It's hard to say what they'll do now. He [Michael O'Leary] could be saying that to depress the [Aer Lingus] share price [before hatching another bid]," said one source with knowledge of the matter.

The full scale of the losses incurred by Aer Lingus last year will not be known until it updates shareholders on 26 January. The most recent trading figures, announced in November, gave an indication of its problems. Revenue in the three months to end September 2009 was down nearly 10% as the airline slashed fares to tempt travellers. Cash reserves plunged 39% from a year earlier to €400m to pay for redundancies. Long-haul passenger numbers were down 25% in November alone, though this was offset by more travellers on short-haul routes. Analysts estimate that pre-tax losses in 2009 could be as high as €123m and the company may lose about €94m this year.

Mueller has begun cutting the airline's cost base in response to the turbulence and to bring it more into line with budget carriers like Ryanair and EasyJet. By axing hundreds of jobs and slashing the salaries of the remaining employees, the company says it can shave €97m from operating costs by 2011.

In addition to the job losses, planes have been taken out of service, an order to buy new aircraft has been put on hold and the number of flights have been reduced.

Though the cost savings have been agreed with most of the unions representing Aer Lingus workers, the company has yet to secure agreement from pilots (many of whom are nursing losses on investing in the company's shares). Talks with pilots' representatives went to an independent arbitrator in December. An announcement on the outcome of the arbitration is imminent, an Aer Lingus source said. Without the agreement from the unions, Aer Lingus has threatened to take more aircraft out of service and impose compulsory redundancies.

Mueller has already warned of the dangers of not getting the full savings, telling the Financial Times last month that "some form of non-independence" is likely if the cuts can't be reached. Those attempts to plot an independent course haven't been helped by more changes at executive level. Not only did the company have to find a new chief executive in 2009, December ended with the sudden resignation of chief financial officer Sean Coyle (who had been poached from Ryanair in August 2008). The CFO role is being filled on an interim basis by Andrew MacFarlane, a former finance director with Rentokil and the Holiday Inn chain, as the search for Coyle's successor continues.

Perhaps anticipating another assault from O'Leary, Aer Lingus has been busy trying to reduce its reliance on Irish passengers and highlighting to investors potential expansion opportunities. A code-sharing agreement with American carrier United Airlines, offering flights between Washington and Madrid, will launch in late March. And Washington/Madrid won't be the venture's only route. Aer Lingus said this week it "is anticipated that additional routes may be made available for sale during 2010 to commence operation in summer 2011".

A "franchise" agreement with regional carrier Aer Arann is also being considered, though analysts at Merrion Capital said any revenue benefit from this "is unlikely to be material" to the company.

Ryanair's financial health is in sharp contrast to the rest of the airline industry. While the number of passengers travelling has been increasing again in recent months, according to International Air Transport Association figures, the industry is expected to generate huge losses. IATA expects airlines worldwide to report losses of $11bn for 2009 and a further $5.6bn this year.

Taking over Aer Lingus, which is now valued at around €338m, is unlikely to dent Ryanair's balance sheet. The airline is forecasting it will have about €2.5bn in cash by 2013 as it scales backs buying new aircraft and cools expansion.

O'Leary says the stumbling block to his ambition to gain control of Aer Lingus remains the government. Rejecting last year's €1.40 a share offer, which was already half the price of Ryanair's 2006 raid on Aer Lingus, the government said it was against the takeover on the grounds of both price and competition, with transport minister Noel Dempsey saying the "cornerstone of Irish aviation policy is and has been for many years, to encourage competition".

There's little financial incentive for the government to reverse that policy now. It would have netted around €380m from the 2006 offer. Aer Lingus shares have plunged 74% since they floated on the stockmarket in September 2006 and shed 57% of their value in 2009.

The taxpayers' stake in Aer Lingus is now worth about €85m. O'Leary said the state is left with a 25% holding in a "loss-making, increasingly marginalised, regional carrier".

A senior aviation analyst says O'Leary may well be forced to concentrate his mind on boosting the Ryanair share price over the next few years following the "distractions" of two failed two bids already and having to suffer the "pain" of writing down the value of the company's 29% stake in Aer Lingus as a result. In its most recent results, for the six months to the end of November, Ryanair wrote down the value of its Aer Lingus shares by €93.6m.

Ryanair said last week that it planned to return about €1bn of its cash to shareholders after 2013, either by buying back its own shares or paying a special dividend. The airline said its days of rapid expansion would end after it failed to seal an agreement with jet supplier Boeing on a new aircraft order. Ryanair told analysts on a conference call that it planned to focus on increasing its profits to about €800m in 2013.

Still, some see O'Leary having ambitions to get control of Aer Lingus before he finally retires as chief executive from Ryanair.

"I'd say if he could get his hands on it he'd love to run it,'' the analyst said. But "internally and externally people want him to focus on the Ryanair share price".