IAG To Take Over Aer Lingus After Ryanair, EU Backing

IAG is set to complete its takeover of Aer Lingus after Ryanair said it would accept the offer and unofficial reports that the EU would give approval to the deal.

IAG's plan to buy Aer Lingus and build a new transatlantic hub at Dublin airport depended on agreement from Ryanair, which holds a 30 percent stake in Aer Lingus, and the Irish government, which agreed to sell its 25 percent stake in May.

It is set to clear the final hurdle and gain European Union antitrust approval for the EUR€1.3 billion (USD$1.45 billion) bid after improving concessions to ease competition worries, a person familiar with the matter said.

The concessions were made ahead of a July 15 deadline and include giving up some airport slots in London and additional agreements with rivals, the source said. A spokesman for the European Commission declined to comment.

EXPANDING CAPACITY

Adding Aer Lingus to its portfolio of airlines -- British Airways, Iberia and Vueling -- opens a new avenue of growth for IAG, allowing it to expand capacity on transatlantic routes by using Dublin Airport.

IAG's biggest unit, British Airways, cannot do that at its main hub, London's Heathrow, because the airport is at capacity.

"More developments targeting North America are a key strategic objective of IAG and this is where Aer Lingus's acquisition is important," said Euromonitor airline analyst Nadejda Popova.

She added the deal was expected to boost IAG's presence in the value end of the market thanks to Aer Lingus's hybrid position between low cost and traditional airlines.

CONSOLIDATION

IAG chief executive Willie Walsh has led the move to consolidate Europe's fragmented airline industry, combining BA and Iberia in 2011, and then in 2013 adding Vueling to give it exposure to budget travel in Europe's short-haul market.

It has said there could be more deals to come. The five biggest airlines in Europe have a market share of 43 percent in the region, compared with a 92 percent share for the top five US airlines in their home market, Lufthansa said last month.

Ryanair had fully written down the value of its Aer Lingus stake, built up during several failed takeover attempts of its own dating back to 2006. That means the proceeds, slightly more than Ryanair spent building its stake, will boost its finances.

Cantor analyst Robin Byde wasn't surprised IAG eventually won the support of Ryanair, which he said could now use the EUR€400 million of proceeds to accelerate planned share buy-backs or pay further special dividends.

"I don't think they see IAG as particularly competitive with their own business so there was no reason to hold back further. It's a straight commercial decision," he said.

"It's a stake they no longer needed to hold, it had no utility. It increases their cash even more at a time when they've got very large new aircraft orders and also they can pay another special dividend."