Ryanair May Have to Divest Aer Lingus Shares

The finding is the latest setback for Ryanair, Europe’s largest airline by number of passengers, in its thorny relationship with Aer Lingus, which it has sought, unsuccessfully, to acquire since first building up a nearly 30 percent stake in 2006.

In a statement, Britain’s Competition Commission said it had concluded that Ryanair’s shareholding had been a significant obstacle to Aer Lingus’s ability to merge or partner with other airlines, limiting Aer Lingus’s strategic options as it seeks to remain competitive amid a recent wave of consolidation across the European airline industry.

The regulator found that the stake also gave Ryanair sufficient influence to block efforts by Aer Lingus to raise new capital or to dispose of valuable takeoff and landing slots at London’s Heathrow Airport.

While the stake was not found to give Ryanair day-to-day control over its rival, it ‘’can influence the major strategic decisions that could be crucial to Aer Lingus’s future as a competitive airline,’’ especially on high-traffic routes between Dublin and London, Simon Polito, the commission’s deputy chairman who led the inquiry, said in a statement.

‘’We were particularly concerned about Ryanair’s influence over Aer Lingus’s ability to be acquired by, merge with, or acquire another airline,’’ Mr. Polito said. ‘’We thought it likely that such a combination would be necessary to increase Aer Lingus’s scale and achieve synergies to allow it to remain competitive in future.’’

The British regulator said it would solicit responses from interested parties to its preliminary ruling and proposed remedies, which include the sale of all or part of Ryanair’s stake, before making a final decision in the matter by July 11.

Ryanair’s chief executive, Michael O’Leary, called the ruling ‘’bizarre and manifestly wrong’’ and vowed to appeal in British court any final decision that imposed what he called ‘’unlawful remedies.’’

Ryanair has made three unsolicited offers in the past six years for Aer Lingus, which is also 25 percent owned by the Irish government. The Irish government has repeatedly expressed its interest in divesting its shares, but has held off in the fear that they could be snapped up by Ryanair or another proxy investor. Ryanair and Aer Lingus already control 70 percent of Irish air traffic, and the Irish government says a combination would leave Ireland, an island nation, too dependent on one operator for vital air links abroad.

The European Commission blocked Ryanair’s latest bid for Aer Lingus, worth nearly 700 million euros, or $900 million, in February after a six-month review. European regulators found that concessions and remedies proposed by Ryanair, which included offers to sell dozens of routes between Ireland, Britain and continental Europe, did not go far enough to allay antitrust concerns.

Ryanair has appealed the commission’s decision to the European Court of Justice, a process that could drag on for years. The airline argued Thursday that any remedies that were ultimately ordered by British regulators could not be implemented before a ruling by the European court in the merger case.

Ryanair has sought, unsuccessfully, to challenge the British commission’s jurisdiction to investigate its Aer Lingus stake since the case was referred to it last year by Britain’s Office of Fair Trading, arguing that the European review of its takeover bid should preclude any separate competition inquiry by an individual member state. A British appeals court rejected that claim in December, saying that as a member of the European Union, Britain had a ‘’duty of sincere cooperation’’ with Brussels to continue its investigation, regardless of the fact that the two airlines are based in Ireland.

Following Europe’s rejection of the takeover, Britain’s Supreme Court in April refused Ryanair permission to further appeal Britain’s right to investigate.

The scope of the British investigation is limited to a review of the impact of Ryanair’s existing stake in Aer Lingus, not a prospective merger.

Aer Lingus said Thursday that it welcomed the British commission’s initial findings and that it would continue to assist in the investigation.

Ryanair contends that the competitive landscape in European air travel has changed significantly, particularly since the global financial crisis and subsequent European economic slowdown has driven traditional network carriers to offer more low-cost options to passengers. The budget carrier points to the approval of a series of big airline mergers in recent years, including that of British Airways and Iberia of Spain to form International Airlines Group in 2010, and that group’s subsequent acquisition of British Midland International in late 2011.

Mr. Polito of the British competition commission acknowledged Thursday that competition between Ryanair and Aer Lingus had intensified on routes between Britain and Ireland in recent years, but he argued that it might have been more vigorous without Ryanair’s shareholding, adding that future competition could also be restricted by Ryanair’s conflict of interests.

‘’Aer Lingus needs to be free to take any actions that will strengthen its position in the future,’’ Mr. Polito said.

Article source: http://www.nytimes.com/2013/05/31/business/global/ryanair-may-have-to-divest-aer-lingus-shares.html?partner=rss&emc=rss