February 5, 2013 / 6:10 PM / in 5 years

Ryanair seeks binding deals to allay EU on Aer Lingus

DUBLIN (Reuters) - Ryanair (RYA.I) is seeking binding commitments from two rivals to compete with it as part of a last-ditch attempt to secure anti-monopoly approval for a takeover of smaller Irish rival Aer Lingus AERL.I, a source close to the deal said on Tuesday.

British Airways (ICAG.L) and Flybe (FLYB.L) have agreed in principle to increase their presence on the Irish market to allay concerns of the European Commission, Europe’s anti-monopoly watchdog, but Ryanair is seeking a binding commitment approved by their respective boards, the source said.

The European Commission last week indicated that the package of concessions will be Ryanair’s last chance to convince it of the merits of the Aer Lingus deal.

British Airways management has agreed to take over Aer Lingus routes between Dublin and London’s Gatwick Airport, the source said.

Rival Flybe said in a statement that it had committed in principle to setting up an Irish subsidiary, with 100 million euros of capital provided by Ryanair, to take over Aer Lingus routes.

Analysts say the concessions have raised the chance of approval by the European Commission, and Aer Lingus’ share price has climbed from 1.10 euro at the start of January to 1.28, just short of the 1.30 euro bid price.

But concerns remain about the strength of Flybe, which has issued profit warnings in recent months and laid off 10 percent of its UK based staff.

Some observers have also questioned the commercial logic for British Airways, which is based in Heathrow, of launching additional capacity from Gatwick.

“If investors were putting on 10 percent probability, now they might be putting on a 30-40 percent probability,” a Dublin-based trader said.

Ryanair had offered to sell Aer Lingus’ Heathrow routes to British Airways to allay concerns the merger would curb competition on routes between the United Kingdom and Ireland.

    But the fact that Aer Lingus requires the approval of over 75 percent of its shareholders to dispose of Heathrow slots raised concerns in the European Commission about the ability of the merged airline to sell the slots, the source said.

    The Irish government, which owns 25 percent of Aer Lingus, has said it opposes Ryanair’s bid.

    Instead, British Airways will commit to take on Aer Lingus routes between Gatwick Airport and Dublin, with an option to take over the Heathrow routes if Ryanair ultimately secures over 75 percent, the source said.

    A spokesman for British Airways declined to comment.

    The new Flybe subsidiary would operate 43 routes that are currently worth around 20 million euros in profit to Aer Lingus each year, the source said.

    Ryanair would have no involvement with Flybe after the new venture’s creation and will not guarantee its profits, the source said.

    Flybe, a low-cost regional airline group operating over 180 routes to 65 European airports, said in a statement that the deal was subject to EU commission approval.

    Additional reporting by Brenda Goh, Editing by Rosalba O'Brien and David Cowell

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