Irish Government Gives Green Light to Aer Lingus Sale to IAG

The Government said that having carefully considered all elements of the offer, it considered that a sale of the State’s minority shareholding to IAG, on the basis of the terms offered, would be “the best means of securing and enhancing Ireland’s connectivity with the rest of the world and maintaining a vibrant and competitive air transport industry in Ireland”. And it would also “best serve the interests of the travelling public, Aer Lingus and its employees, the Irish tourism industry and the Irish economy as a whole”.

The Irish government has agreed to sell its 25.1 per cent stake in the country’s national carrier Aer Lingus to the International Consolidated Airlines Group (IAG), parent of British Airways, Iberia and Spanish low-cost carrier Vueling, after accepting a third offer from the group for its majority share in the airline. IAG has offered to pay €2.55 for each share, comprising €2.50 for each share and a €0.50 cash dividend per share, valuing the carrier's entire issued and to be issued ordinary share capital at €1.4 billion ($1.52 billion).

According to the Irish Minister for Transport, Tourism and Sport, Paschal Donohoe TD, the Government took a decision to support IAG’s offer for Aer Lingus “following detailed and careful consideration of all of the issues involved in a potential disposal” of its shareholding.

Having already dismissed earlier offers, the latest bid appears to have got over the line after IAG provided additional guarantees on certain commitments sought by the Irish Government relating to continuation of service and maintaining staff levels and the Aer Lingus brand. The deal is now subject to approvals by the Irish legislature's lower house as well as Aer Lingus’ shareholders, which include low-cost rival Ryanair, and then the European Commission.

The Government said that having carefully considered all elements of the offer, it considered that a sale of the State’s minority shareholding to IAG, on the basis of the terms offered, would be “the best means of securing and enhancing Ireland’s connectivity with the rest of the world and maintaining a vibrant and competitive air transport industry in Ireland”. And it would also “best serve the interests of the travelling public, Aer Lingus and its employees, the Irish tourism industry and the Irish economy as a whole”.

Under the terms of the deal, the Irish Government has secured important guarantees in respect of Ireland’s future connectivity, particularly to London Heathrow, and on the maintenance of Aer Lingus’ iconic brand and of its head office in Ireland.

In recognition of the importance of direct air services and connectivity for investment and tourism in Ireland, IAG has agreed with Government to include a number of legally binding connectivity commitments in its offer, particularly as regards access between Irish airports and London’s Heathrow Airport.

This will see Aer Lingus’ existing slots at Heathrow continued to be held by Aer Lingus for an unlimited time. The Irish carrier will continue to operate its current daily year-round flights between London Heathrow and Dublin, Cork and Shannon for at least seven years post-acquisition (with the final two years of this period being subject to a condition that airport charges would not increase beyond certain levels).

In addition, in the first five years post-acquisition, Aer Lingus’ remaining Heathrow slots which are currently operated from Belfast would continue to be operated on routes to/from the island of Ireland, in each case unless otherwise agreed by Government.

In terms of the Aer Lingus brand, IAG has also agreed with the Irish Government to a legally binding commitment that protects the Aer Lingus brand and head office location in Ireland. It has also confirmed that the existing employment rights of the employees of Aer Lingus will be fully safeguarded and that by December 31, 2016 there will likely be a net employment growth of approximately 150 employees; and that by 2020, growth at Aer Lingus could lead to the creation of up to 635 new jobs.

In fact IAG has ambitious plans to develop its activities in Ireland through Aer Lingus, promote Ireland’s wider connectivity and make better use of the infrastructural investment that has taken place at Irish airports over recent years. It plans to use Dublin as a natural gateway hub for transatlantic routes, while maintaining connectivity from Cork and Shannon.

By 2020 IAG believes that IAG and Aer Lingus could deliver up to 2.4 million more passengers, four additional destinations in North America (in addition to the recently commenced Dublin-Washington service) and add eight additional aircraft to the airline’s fleet. IAG anticipates that two of these new transatlantic services can be added as soon as summer 2016.

IAG’s plan for Aer Lingus calls for it to sustain and grow its business at Cork Airport. IAG has stated that Aer Lingus’ services from Cork to Paris and Amsterdam will be continued and that growth opportunities with tourism and business interests in the Munster region will be pursued.

daa, which operates Dublin and Cork airports, welcomes the Government’s decision this evening to support IAG’s proposal to acquire Aer Lingus. “We believe that this transaction, should it be completed, offers significant potential benefits for both Dublin Airport and Cork Airport,” said chief executive officer, Kevin Toland.

“Dublin Airport is already becoming a significant hub for transatlantic travel and this market segment would be further strengthened with IAG as the owner of Aer Lingus. This should enable additional long-haul connections and frequencies into Dublin’s existing transatlantic hub. The proposed acquisition should also bring greater opportunities for short-haul growth from both Dublin and Cork airports,” he added.

Meanwhile, at Shannon, in the context of sustaining and growing services from the airport, IAG has indicated that Aer Lingus’ flights to Boston and New York are expected to be strengthened and options to enhance the existing all-business British Airways twice-daily service (from London to New York JFK via Shannon) will be considered. IAG has also stated that growth opportunities with tourism and business interests in Ireland’s Mid-West region will be pursued together with IAG’s US partner, American Airlines.

The Chairman of Shannon Group plc, Rose Hynes, has also welcomed the news on the proposed IAG takeover of Aer Lingus. “This decision paves the way for IAG to take over Aer Lingus. It's good news; it’s a positive opportunity for Ireland, will safeguard the Shannon – London Heathrow connectivity for seven years and it opens the door to further growth at Shannon,” she said.

“An IAG takeover of Aer Lingus opens a new era, not just for Aer Lingus but also for Shannon Airport and the region. We are delighted that IAG has committed not only to sustain and strengthen Shannon's existing Aer Lingus services after the takeover but also to pursue further growth opportunities from Shannon to North America,” she added.

IAG also plans to sustain and grow Aer Lingus’ business at Knock Airport, by maintaining the service to London Gatwick and actively working with Knock Airport to explore the new growth opportunities that will be available as part of IAG.

“IAG has set out ambitious growth plans for the company and the Government is confident that supporting IAG’s offer for Aer Lingus is the best way of securing Aer Lingus’ future in an increasingly competitive global airline market and of enhancing Ireland’s connectivity with the rest of the world and our potential for growth and development into the future,” said Minister Donohoe.

The commitments within the deal will be maintained upon completion of the offer, by the Irish Minister for Finance retaining one share in the company. This will be redesignated as a new class of share and have certain rights attached to it, so that the prior consent of the Minister for Finance, in consultation with the Minister for Transport, Tourism and Sport of the day, will be required by Aer Lingus before taking any action inconsistent with the connectivity commitments.

“Aer Lingus, Ireland and IAG would all benefit from this deal. Aer Lingus would maintain control of its brand and operation while gaining strength as part of a profitable and sustainable airline group in an industry that’s consolidating," said IAG chief executive Willie Walsh, who started his aviation career at the Irish carrier.

"Acquiring Aer Lingus would add a fourth competitive, cost effective airline to IAG, enabling us to develop our network using Dublin as a hub between the UK, continental Europe and North America,” he added.

Meanwhile, Aer Lingus chairman Colm Barrington said the deal is a "compelling transaction" for the airline. "The company will reap the commercial and strategic benefits of being part of the much larger and globally diverse IAG Group and as a member of the Oneworld alliance. This access to greater global scale will accelerate growth across our network, enhance Ireland’s position as a natural gateway connecting Europe and North America, give Irish tourism access to major traffic flows and customer loyalty programmes and provide better access for business interests and to cargo flows," he added.


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