IAG must allay fears if deal is to be done

Barry O’Halloran

International Consolidated Airlines Group (IAG) clearly realises that it will have to tackle a lot of fears head on if its €1.36 billion proposal to buy Aer Lingus is ever going to fly.

Early on Tuesday, the Aer Lingus board issued a statement saying that IAG’s terms, €2.55 a-share, are at a level that it would be willing to recommend to shareholders, subject to being satisfied with the “manner in which the group proposes to address the interests of the relevant parties”.

This is a reference to the concerns that the Government, responsible for the State's 25.1 per cent stake in Aer Lingus, is likely to raise with IAG, whose Irish chief executive, Willie Walsh, is understood to be meeting with Coalition representatives today to discuss his group's plans for the airline.

Those concerns have been aired repeatedly since IAG first approached Aer Lingus in the middle of last month. They are mainly focused on the landing rights at London’s Heathrow Airport controlled by the Irish flag carrier, which are seen as vital to maintaining links with markets for tourism, exports and inward investment.

Preserving those slots - as they are known - at the London hub, was the main motivation behind the then Government’s decision to retain 25.1 per cent of Aer Lingus when it floated the State-owned airline in 2006. The holding gives it an effective veto over their sale.

Along with the concerns about the loss of that control and of any kind of influence over Aer Lingus, there are fears that it will lose its independence and ultimately be swallowed up by the larger group, which is one of Europe’s biggest airlines.

IAG sets out to deal with these misgivings in a statement that it issued on Tuesday morning. That says that, under its ownerhip, Aer Lingus would operate as a separate business within the group with its own brand, management and operations "continuing to provide connectivity to Ireland, while benefitting from the scale of being part of the larger group".

It would join the Oneworld Alliance partnership of airlines, of which IAG subsidiaries, British Airways and Iberia are key members. Along with that, and possibly more significantly, it would join the north Atlantic business that the group operates in partnership with American Airlines.

IAG argues that this would allow Aer Lingus to exploit the “natural traffic flows” between Ireland the and the US and Dublin’s advantageous position for serving flights connecting to routes across the Atlantic.

This is already part of the Irish airline's strategy. Last year, 750,000 of the 2.1 million people it flew from Dublin to North America began their journeys in Britain or Europe and transferred to its transatlantic services at the capital's airport.

IAG is signalling that it believes this business could continue growing, and, with the aid of a tie in with American Airlines, could do so at a faster rate than before.

The group winds up its statement with an assurance that it recognises the importance of diret air services to for investment and tourism here.

If it is to have any chance of buying Aer Lingus, it will have to convince the Government that that assurance is real and that it will apply not just to the immediate future, but into long term, irrespective of changes in managment and the air travel market.