March 29, 2024

Aer Lingus on Firmer Footing for New Challenges

DUBLIN — Christoph Mueller, the chief executive of Aer Lingus, accompanied the Irish prime minister, Enda Kenny, and other officials Friday on a flight aboard a restored 1936 De Havilland Dragon to mark the 75th anniversary of the airline’s first scheduled service.

The six-seat, twin-engined propeller plane was restored for the occasion by a volunteer team of Aer Lingus pilots and engineers — a “labor of love,” as Mr. Mueller put it, as well as a source of comfort at a moment of wrenching austerity and economic uncertainty across Ireland.

“I believe it has served a little bit as a campfire,” Mr. Mueller said during an interview in his office overlooking Terminal 2 at Dublin Airport. “I mean, 1936 were difficult times, too.”

Yet for Mr. Mueller, a German who took the helm of the struggling Irish flag carrier less than two years ago, Friday represents more than just a sentimental milestone.

“Out of 800 airlines in the world today, only about 13 are 75 years or older,” he said. “This proves that the airline business has always been very, very tough. Only a few make it.”

It also represents a turning point. After three-quarters of a century of state ownership — Aer Lingus was privatized in 2006, but the Irish government still owns a 25 percent stake — he said it was time for Dublin to let go.

“Maybe we are a bit of a late developer,” Mr. Mueller said, choosing his words carefully. “But after 75 years, I believe we are ready to finally leave the parents behind.”

Many industry executives and analysts have long argued that full Irish divestment from Aer Lingus is inevitable and that the company’s share price would also benefit if the stock were more widely held.

But there is less agreement about what an end to the state’s role may portend for the future ownership of Aer Lingus. The airline is seeking to reinvent its business model in the face of bare-knuckled competition from its low-cost rival, Ryanair, and pushing ahead with an aggressive turnaround program that aims to lower its employee head count by 20 percent and cut at least €100 million, or $141 million, in costs by the end of this year.

For one thing, the government is not the only big shareholder in Aer Lingus. Ryanair, whose headquarters are just across a parking lot from Mr. Mueller’s office at the airport, holds a nearly 30 percent stake in Aer Lingus, the legacy of two hostile takeover attempts — in 2006 and 2008 — that were flatly rejected by the Irish government and E.U. regulators as anti-competitive. Aer Lingus and Ryanair together control 70 percent of the Irish air travel market.

“If the Irish state were to try and place its shares into the market, there is the risk that Ryanair would try and snap them up unless there were some arrangement worked out with Ryanair beforehand,” said Stephen Furlong, an analyst at Davy Stockbrokers in Dublin.

The alternative, he and other analysts said, would be to sell to another investor, most likely one of Europe’s three major airlines: Air France-KLM, Lufthansa or the recently merged British Airways-Iberia, now known as the International Airline Group.

And therein lies the rub. “Any industrial buyer of Aer Lingus would probably be reluctant to have Ryanair as a large minority shareholder,” said Gerard Moore, an analyst at Merrion Capital in Dublin.

Representatives for all three groups said it was their policy not to comment on speculation about possible acquisitions.

Ryanair’s chief executive, Michael O’Leary, said he had long ago gotten the message from regulators and Aer Lingus employees, who own 14 percent of the airline, that a third offer for the carrier would be unwelcome. “We are still too emotive a subject here in Ireland,” Mr. O’Leary said.

After the €85 billion bailout Ireland received from the European Union and the International Monetary Fund last year, however, Mr. O’Leary said the government was under pressure to put its financial house in order.

Article source: http://www.nytimes.com/2011/05/28/business/global/28air.html?partner=rss&emc=rss