Offers To Buyout State Airline For $1.9 Bil

It appears Ryanair wants to keep it all in the family. In a surprise move, the Irish low-cost, no-frills carrier made a bid Thursday for the other Irish airline... state-owned Aer Lingus.

Aer Lingus opted for privatization as a way to generate funds for a $2.5 billion expansion of its long-haul fleet. To date, Ryanair's executives haven't shown any interest in serving a long-haul market... but they revealed Thursday Ryanair has already bought 16-percent of Aer Lingus.

Apparently, it wants the rest of Aer Lingus pretty badly. Ryanair offered $3.50 a share... nearly 75 cents more than Aer Lingus' share price, and a total offer of $1.9 billion dollars.

The Washington Post reports, however, that Aer Lingus Chairman John Sharman says the airline's board has unanimously rejected Ryanair's hostile takeover attempt.

"This approach is unsolicited, wholly opportunistic and significantly undervalues the group's businesses and attractive long-term growth potential," Sharman said. "In addition, the offer would raise significant regulatory issues as a result of Aer Lingus Group's strong position in its core markets."

Ryanair CEO Michael O'Leary says he sees no insurmountable problems with EU rules on competition, which are similar to US anti-trust laws. Aer Lingus' labor unions, however -- who are part owners of the airline -- oppose privatization, and this deal especially. O'Leary won't deal with unions for Ryanair.

That doesn't necessarily count Ryanair out, though... as the door is still open for the airline to up its offer. O'Leary stated earlier Thursday the airline has as much as $2.6 billion in cash reserves it may use to outbid other interested suitors, such as British Airways -- whose CEO, Willie Walsh, once ran Aer Lingus.

Ryanair also hopes to placate concerned employees by stating Aer Lingus would continue to operate with its current management and staff. O'Leary says Ryanair could help Aer Lingus with cost control, and increase it buying power for new planes.

"We believe it's a unique opportunity to put the two leading Irish airlines together into one strong group that would be able to compete with Europe and the world," O'Leary said in an interview.

Ryanair also hopes to benefit from Aer Lingus' superior earnings yield. Regardless of who purchases the airline, the Irish government still retains 28-percent of Aer Lingus... with no plans to sell.

If the deal goes through -- a big "if" at this point -- a combined Ryanair/Aer Lingus conglomeration would handle some 50-million pax per year. And that places them on a par with other massive alliances... such as Air France-KLM.

FMI: www.ryanair.com, www.flyaerlingus.com