BA shares fly high on hopes of €1.36bn Aer Lingus takeover

The main prize for Willie Walsh will be the increase in slots at Heathrow

Aer Lingus planes at Dublin Airport (PA)

Aer Lingus has announced it is considering an improved takeover offer of €1.36 billion from International Consolidated Airlines Group (IAG), the parent of British Airways.

The boss of British Airways, Willie Walsh, was closing in yesterday on a €1.36bn (£1bn) takeover of Aer Lingus, the Irish flag-carrier for which he once flew as a pilot.

Mr Walsh, the chief executive of International Airlines Group (IAG), which owns BA and Iberia, began his pursuit of Aer Lingus last month and made a third and improved offer of €2.55 a share, plus a 5 per cent cash dividend.

Aer Lingus appeared to drop its opposition to IAG’s approach and said its board was “considering the revised proposals”. It said any deal was conditional not just on its board’s recommendation – which now seems likely – but also the approval of Aer Lingus’s two largest shareholders, Ryanair and the Irish government. Ryanair holds a 29.8 per cent stake and the government has 25.1 per cent.

Ryanair has already indicated that it would consider an offer which came in above €2.50 a share. Its boss, Michael O’Leary, has accepted that competition authorities would never allow it to bid for its Irish rival, and his investors can expect a significant windfall if the IAG deal goes through.

For Mr Walsh, the main prize of the takeover is a big increase in slots for take-offs and landings at Heathrow. Aer Lingus is the fourth-largest operator at the airport, after BA, Lufthansa and Virgin Atlantic, and it has 24 landing slots valued at €400m.

But the Dublin government is more concerned about guarantees that flights will continue to the republic’s regional airports, such as Cork and Shannon, and that services from Dublin to Heathrow will not be slashed.

Yesterday, the Irish Municipal, Public and Civil Trade Union (Impact), which represents cabin crew, pilots and some ground staff at Aer Lingus, said a takeover could lead to the loss of up to 1,200 jobs – a quarter of the workforce.

Last night, IAG’s shares rose by 13p to 549p – their highest since the company was formed in 2011. Aer Lingus nudged up 2 cents to €2.37 – below the offer price.

Elsewhere, shares in Flybe were battered yesterday after it forecast a break-even performance in the year to March. The Exeter-based budget carrier posted its first pre-tax profit in four years for the 12 months to March last year, helped by brutal cost cuts that involved giving up airport slots, slashing jobs, exiting unprofitable flight routes and grounding surplus fleet.

But it swung back into the red in the first half of the current year after one-off costs and a charge related to its exit from a Finnish joint venture. The charges came against the backdrop of a 3.8 per cent fall in revenues in the final quarter of 2014, as competition on London City routes increased. Its shares tumbled nearly 26 per cent, or 23p, to 67p.

Flybe admitted it was unlikely to gain from tumbling jet fuel costs. Jet fuel has plunged to just over $500 a ton but Flybe has hedged 97 per cent of its fuel in the current quarter at $948 a ton and 71 per cent in the first half of next year at $937 a ton.