Private Investor: Will the sky be the limit for Aer Lingus?
Saturday 02 September 2006
If nothing else, the news that Aer Lingus was to be privatised by the Irish government at least gave British Airways shares a fillip. This week saw them well and truly bust through the £4 mark, a remarkable turnaround from their post-9/11 nadir of under a pound. The brave, or far-sighted, bought lots then. The timid, such as me, bought a few at those levels, partly on the grounds, as I recall, that I didn't want to see the terrorists destroy the international travel industry.
But still, no one in their right minds thinks that aviation is a good investment, do they? The answer to that is, of course, that it usually isn't - the history of the industry is littered with failed names, from Pan Am to Swissair - so putting your cash into an airline is a worrying thing. Yet, as I have learnt with my small holding in British Airways, fortune does sometimes favour the bold.
As a hedge to my holding in BA, however, I also decided to buy a few shares in easyJet. That, too, has had its ups and downs, with the latest incredibly restrictive baggage restrictions doing disproportionate harm to the "budget" airlines, which need passengers on and off their planes very quickly so that they can turn them around in 20 minutes or so. The more mucking about there is with bottles of shampoo at the security gate, the slower the turnaround and the harder it is for the likes of easyJet and Ryanair to operate in their ultra-efficient manner. So now, my shares in BA, less susceptible to such changes because of their much broader international base, look like a hedge on my investment in easyJet. Funny old world.
Which brings me back to Aer Lingus. Privatisations are increasingly rare, and cross-national ones were never terribly common anyway, and never that juicy. Unlike the British state, our European partners didn't seem to think that it was their duty to guarantee investors an instant profit on every single sell-off. I still have the shares I bought in Deutsche Post, and while they've been OK performers by European standards, they were no bonanza.
So, even though it will cost a minimum of about £7,000 to get a piece of the Aer Lingus action, a substantial sum, the offer will at least be open to punters, and not just available to the City professionals . There's obviously no hurry on this, but the shares are going on sale at the end of next month, and it should be worth giving Aer Lingus the once over. And there are some interesting factors to consider in the story.
First, the timing isn't especially suspicious. Indeed, in the wake of 7/7, the announcement isn't that propitious. This is no panic sale, because the privatisation of the Irish flag-carrier has been on the cards for ages, and was actually held up by a series of wrangles between its management and the Irish government.
Second, the short-term reason why Aer Lingus is going to the markets is to pay for some new planes. Perfectly reasonable, and, longer term, it should generally be able to raise capital more flexibly when it's listed. Willie Walsh's management of the airline got costs under control (he's now happily at BA).
Third, there's the Irish economy. Maybe the best years of the Celtic Tiger are already behind it, but the great leap forward, to borrow another Oriental concept, has really pushed the country into the premier league. It still takes some getting used to that Ireland is now one of the wealthiest nations in Europe, per capita, and while its economy might be affected by the usual ups and downs of the trade cycle, it is unlikely to drop back to its old depressed status.
There are risks though. Aer Lingus nearly went bust after 9/11 because of its over- reliance on its US routes. It is, so some say, pulling out of the Oneworld alliance (with British Airways, American Airlines and Qantas, among others). And it has an odd relationship with Aer Rianta, the state- owned body that has been the holding company both for Aer Lingus and Ireland's airports (compared with the rather antagonistic relationship between BA and BAA, say). It is still small in global terms, and maybe only sheer bulk can protect you against the commercial effects of terror.
Experience of past Irish privatisations will probably mean that the float isn't too underpriced, so not such a tempting bargain. For the brave, Aer Lingus might be worth booking a flight on. I'll be asking for the forms.
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