by Jonathan Braude | Published May 1, 2012 at 10:19 AM
Abu Dhabi airline Etihad Airways P.J.S.C. emerged as a possible buyer of the Dublin government's 25% stake in Ireland's struggling national carrier, Aer Lingus Group plc, on Tuesday, May 1, after acquiring a small strategic holding in the company.
The initial acquisition of 2.987% of Aer Lingus stock, worth about €15.6 million ($20.7 million) at Monday's closing price of €0.975 a share, was not necessarily aimed at a potential takeover, according to the target airline's own statement.
Aer Lingus said it was engaged with Etihad in discussions which "to date have focused on reciprocal code-share opportunities," while future discussions might explore "additional commercial and cost opportunities to develop a closer working relationship in areas such as joint procurement."
While code sharing could give Etihad valuable access to Aer Lingus' European and dense U.S, route network and additional slots at London's Heathrow airport, the statement clearly stated that Etihad was not expected to increase its holding in the airline while the talks were still under way.
Etihad later confirmed the acquisition in an emailed statement, but made no mention of building a further stake.
Instead it said the purchase "reflected its desire to forge a commercial partnership with the Irish national carrier." It added that "a possible partnership could produce significant commercial benefits for both airlines."
However, reports pointed out that Etihad has a track record in building a significant holding from small beginnings. In December 2011, the Gulf airline increased its holding in German carrier Air Berlin plc & Co. Luftverkehrs KG from 3% to nearly 30%, after reaching a code-sharing deal. It paid a reported €73 million for the stock and lent Air Berlin a further $255 million.
The announcement immediately attracted a response from Aer Lingus' low-cost rival Ryanair Holdings plc, warning against a government sale.
"If this [the government's stake] is sold to Etihad or to a financial investor," Ryanair said in a statement, "then it is inevitable that Aer Lingus will be broken up and some or all of its Heathrow slots lost to Ireland."
Ryanair did not explain why a breakup was inevitable. But it went on to say that it would still be open to acquiring the 25% itself, or, "if the government believes that any offer from Ryanair for this stake would be unwelcome," that it would be happy to work with any other financially strong airline to restore shareholder value.
Ryanair's statement also repeated that it would be prepared to work with a future investor to dispose of its own holding of nearly 30%, if the price was right.
However, the Aer Lingus statement noted that Etihad would not be eligible to buy both the government's and Ryanair's holdings, by pointing out that European Union regulations prevent non-EU nationals from acquiring a majority holding in the Irish airline.