Loss-making Irish airline Aer Lingus' unattractiveness to international suitors has increased the prospect of nationalization or even a government-mediated bailout by rival Ryanair.
The flag carrier has posted two profit warnings this year and seen passenger numbers, fares, and cash reserves plummet, prompting analysts and unions to suggest it should be bought or taken back under state ownership.
Analysts say that Aer Lingus, with its domestic focus, is hardly a prize catch, and potential international suitors have their hands full with attempted deals anyway.
"Ireland has such a small market -- I am not sure whether it would be worth paying for that type of business," says Gert Zonneveld, an analyst at Panmure Gordon.
"The short haul does not offer a huge amount of potential, so it would just be feeding volume into the long haul market," he said, adding that Ryanair was a fearsome competitor and that connection traffic through Ireland was low.
British Airways has stalled talks with Spanish carrier Iberia while both carriers fight against the global downturn in air travel.
Germany's Lufthansa is already trying to swallow Austrian Airlines and Brussels Airlines, leaving only Air France-KLM with the firepower to make a move.
Aer Lingus is almost entirely exposed to Ireland, a nation of just 4.4 million people hit more than many others by the global recession.
The company is expected to reveal another list of poor forecasts at its annual shareholders' meeting in Dublin on Friday.
"Perhaps Friday is the last chance for the Minister for Transport to stop talking about cost cuts and actually do something useful in the interests of Aer Lingus' passengers and shareholders," Ryanair CEO Michael O'Leary said in an open letter to the Irish government.
Aer Lingus said in April that quarterly revenues were down 16 percent, while its full year loss would be worse than expected. The airline, currently without a CEO, added that long haul capacity was down by a fifth and its cash position -- seen as its main strength -- had fallen 9 percent in the three months to just under EUR600 million euros.
The International Air Transport Association (IATA) said Thursday that losses from the world's airlines would be worse than forecast this year, underlining the difficulties weak airlines face in finding suitors.
NATIONALIZATION, AND A PROBLEM SHAREHOLDER
The Irish government holds a 25 percent stake in Aer Lingus, but its ability to make a decision on the airline's future is complicated by near 30 percent shareholder Ryanair and Aer Lingus employees, who have a 14 percent stake.
Low-cost carrier Ryanair -- which has grown to be the biggest airline in Europe by market value as passengers downgrade to cheaper flights in the recession -- has so far used the stake to launch two unsuccessful takeover approaches and is determined to be as troublesome a shareholder as possible.
"We are highly unlikely to make a third bid, but I can foresee the Irish government and unions coming to us in the next 12-18 months," Ryanair's O'Leary told reporters this week.
The Irish government, which stands by its decision to reject Ryanair's last offer of 1.40 euros a share -- double the current value -- will be loath to go begging to O'Leary, having rebuffed his takeover offers twice already, but could be left with little choice.
Trade Union SIPTU, which represents 1,700 Aer Lingus employees, says it favors Irish state intervention over a purchase by a purely commercially driven airline, but sees the carrier's prospects as bleak.
"We already have commentators from across the political spectrum debating the need to re-nationalize (telecoms group) eircom in order to restore our broadband connectivity to something approaching international standards. I wonder if we may not have to look at aviation next?" said Joe O'Flynn, SIPTU's general secretary.
Ireland has already earmarked over EUR10 billion (USD$14.2 billion) to rescue its banks, while Aer Lingus is worth just EUR375 million.
Aer Lingus itself says a major cost-cutting program is the only way to save the business.
"Ongoing cost reduction is critical for the viability of Aer Lingus in the current difficult market environment," it said in the April statement, a comment seized upon by Ryanair to ask the government to support a cut in director pay at this week's AGM.
