Ryanair told to sell chunk of stake in rival

Michael O'LearyMichael O'Leary
Michael O'Leary
THE competition watchdog has ordered Ryanair to sell most of its stake in Irish rival Aer Lingus, a potentially fatal blow to chief executive Michael O’Leary’s dream of buying the former flag carrier.

Mr O’Leary immediately vowed to appeal against the “bizarre and manifestly wrong” order to cut Ryanair’s stake to 5 per cent from 30 per cent, opening the prospect of a legal process that analysts say could last years.

Echoing a ruling by the European Commission in February to block Ryanair’s third bid to take over Aer Lingus, the Competition Commission said Ryanair’s stake could lead to “a substantial lessening of competition” on some routes.

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In addition to cutting the stake, the body ordered Ryanair not to seek additional shares or board representation.

The watchdog claims jurisdiction over the Irish airlines due to 11 routes between Ireland and Britain where Ryanair flights compete with those of Aer Lingus or partner Aer Arann.

Ryanair said the Competition Commission could not lawfully impose any remedies on Ryanair until the completion of Ryanair’s appeal against the European Commission ruling.

Mr O’Leary built up a 30 per cent stake in Aer Lingus between 2007 and 2009 as a platform to take over the 75-year-old airline, a purchase that would have capped the rise of his upstart airline that began with one 15-seater plane in 1985.

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Ryanair, whose low-cost model has since come to dominate European aviation, carried almost 80m passengers last year compared with under 10m at Aer Lingus, and Mr O’Leary says a takeover would allow him to slash his rival’s cost base.

But the Competition Commission found the current ownership structure could limit Aer Lingus’s ability to manage effectively its portfolio of Heathrow slots and could impede Aer Lingus from combining with another airline.

While the two airlines currently impose a “strong competitive constraint” on each other, the report found that Ryanair would have the incentive to use its influence to weaken Aer Lingus’s effectiveness as a competitor.

Mr O’Leary said in a statement the ruling violated European law due to contradictions with recent findings of the European Commission and that it failed to acknowledge Ryanair’s recent offer to unconditionally sell its minority stake to any other airline that secures Aer Lingus shareholder approval for a takeover bid.

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He accused the body of double standards for not blocking the purchase by British Airways owner of British regional airline Bmi, which was completed last year.

Mr O’Leary said the decision had been expected and that the Competition Commission had made its mind up in advance.

“This prejudicial approach to an Irish airline is very disturbing, coming from an English government body that regards itself a model competition authority,” he said.

Mr O’Leary added: “It would appear to be a case of one rule for the UK airlines but an invented set of rules for two Irish airlines.”

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Ryanair said its lawyers would lodge a complaint to the competition appeal tribunal in the coming weeks.

The appeals mean Aer Lingus management is unlikely to quickly fulfil its ambition of getting Ryanair off the company’s share register and replace it with institutional investors or a strategic partner.

Having already written down the 407m euros it paid for the Aer Lingus stake to 80m euros, Ryanair could book a profit at the current share price, which would value the stake at around 270m euros.

But it says no one has expressed an interest in buying it.

Simon Polito, the commission’s deputy chairman and chairman of the Ryanair/Aer Lingus inquiry group, said there is intense competition between the two airlines for passengers between Ireland and the UK.

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He said rivalry for customers was as strong now as when Ryanair started its share buy-up in 2006.

“However, we consider that there is a tension between Ryanair’s position as a competitor and its position as Aer Lingus’s largest shareholder, and that Ryanair has an incentive to weaken its rival’s effectiveness as a competitor,” Mr Polito said.

“Ryanair proposed various remedies to us in an attempt to address our specific concerns.

“In a dynamic and uncertain sector such as the airline industry, however, it is inherently difficult to design remedies that would cater for all eventualities.

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“We concluded that the effective and proportionate remedy that would address our concerns was to require a partial divestment of Ryanair’s shareholding to 5 per cent facilitated by the appointment of a divestiture trustee.”

Aer Lingus chairman Colm Barrington said the ruling showed that its main rival’s shareholding went against the interests of 14m passengers flying between Ireland and the UK.

“It was unacceptable that our principal competitor was allowed to remain on our share register with a shareholding of 29.82 per cent and interfere with our business despite the European Commission blocking both Ryanair’s first hostile takeover attempt six years ago and its most recent hostile takeover attempt earlier this year,” he said.

Ryanair operates a Dubin service from Leeds Bradford Airport.