Aer Lingus CEO Says Flybe a ‘Tool’ in Ryanair Takeover Game

Aer Lingus Group Plc Chief Executive Officer Christoph Mueller said Ryanair Holdings Plc’s plan to transfer part of the Irish flag carrier’s business to Flybe Group Plc as part of a takeover bid can’t be taken seriously.

“It seems so far-fetched, this proposition, that we don’t waste our time in basing things on that,” Mueller said today on a call with reporters. “The entire bid, starting from the price to the construction of the deal, I cannot take really serious.”

Flybe stock rose 30 percent today after it said agreement had been reached with Ryanair on transferring 43 routes and at least nine jets as part of concessions submitted to the European Commission to help win antitrust approval for a deal. Ryanair has also held talks that could see British Airways add Irish routes in an accord aimed at later transferring Aer Lingus slots at London Heathrow, people familiar with the matter have said.

“Only the motivation seems to be clear,” Mueller said of the plans being discussed. “We have taken market share from Ryanair, British Airways and Flybe and since they cannot beat us in the market place this seems to be a trick in front of the Commission. We see Flybe only being a tool in that game.”

BA Success

Piaras Kelly, a spokesman for Dublin-based Ryanair, which has grown to become Europe’s biggest discount airline under CEO Michael O’Leary, declined to comment.

Flybe said today it could implement the Irish expansion with next winter’s timetable, contingent on Ryanair -- which already owns about 30 percent of Aer Lingus -- gaining European Union approval for the remedies and going ahead with a deal.

“The reason Michael O’Leary approached us is because they saw how successfully we turned around British Airways,” Flybe CEO Jim French said on a separate call, referring to the 2006 acquisition of the BA Connect business, a deal that turned his carrier into the largest in Europe in the regional sector.

Shares of Exeter, England-based Flybe jumped the most since the company’s listing in December, 2010, and traded 21 percent higher at 54.25 pence as of 12:40 p.m. in London, valuing the company at 40.8 million pounds ($64 million).

‘Upside Down’

Under the scenario mapped out by Flybe, the U.K. carrier would acquire a new business, Flybe Ireland, for 1 million euros from Ryanair. The low-cost carrier would inject 100 million euros of cash into the unit, contribute 50 million euros of forward sales and assume sufficient costs to ensure Flybe makes a 20 million-euro pretax profit in the first year, French said.

“We question very much that Flybe will be an independent competitor to Ryanair,” Mueller said. “We generally agree that weak airlines should disappear but this proposition turns this entire thing upside down.”

Mueller is trying to “divert the focus away” from Aer Lingus’s own operations, French said, adding that Flybe would boost frequencies and integrate Irish routes into its network as a “long-term business opportunity.” The airline would pay a penalty if it dropped services in the next three years, he said.

BA previously paid Flybe about 130 million pounds to cover restructuring when gave up its regional arm, French added.

The proposed deal with Ryanair is in keeping with Flybe’s strategy of expanding in a low-risk fashion, Investec analyst Andrew Fitchie said in a note to investors.

Monopoly Concern

The EU blocked a Ryanair bid for Aer Lingus five years ago, saying it would create a monopoly over Irish flights. O’Leary’s plans have also drawn opposition from the Irish government, which holds a 25 percent stake.

Aer Lingus stock rose above the value of Ryanair’s 1.30 euros-a-share bid for the first time as an increase in long-haul traffic boosted full-year revenue, gaining 4.1 percent to 1.34 euros before trading 0.4 percent higher at 1.29 euros.

Pretax profit before one-time items of 67.1 million euros was “marginally ahead” of the 64.9 million euros expected, James Hollins, another Investec analyst, said. Sales rose 8.2 percent to 1.4 billion euros and the passenger total increased

1.5 percent to 9.65 million, Aer Lingus said.

Aer Lingus will lift its full-year dividend 33 percent to 4 cents a share, it said in a statement. The company said it cannot provide an earnings outlook for 2013 while takeover proceedings are outstanding, though Mueller said he was “very optimistic” about prospects for the year.

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