The Ryanair Aer Lingus takeover/Siptu/etc

pjproby

Do you ever think of all the contradictions, alliances, principled stands inherent in the proposed takeover of Aer Lingus by Ryanair?
On the one hand we have Siptu whose leadership is fundamentally opposed to the takeover. Additionally Siptu leadership refuse to travel with Ryanair on the basis that O’Leary does not recognise trade unions. However clearly large numbers of rank and file members of Siptu use Ryanair, how else could Ryanair have thrived?
Then we had the economic commentators telling us before the privatisation that no one wanted to buy Aer Lingus shares, now the same group seems to believe it was sold off too cheap.
The initial reaction of the board of Aer Lingus was that that the bid undervalued the company, this a mere two weeks after the flotation at a lower price than O’Leary is offering.
There then followed the reaction to the bid itself. The reaction itself seems based on a fear of O’Leary rather than any analysis of the financial benefits, if any.
It now seems that, in particular that the pilots are actually using their own pension funds to purchase shares in Aer Lingus. It seems to be an almost suicidal attempt to prevent the takeover, since if O’Leary withdraws the bid the share price would most likely collapse leaving the pilots and their pensions vulnerable.
The Government, who are totally opposed to the takeover, would realise a gain of €500 million if they sold which might pay for a lot of hospital beds.
Bertie Ahern effectively forced Willie Walsh out of Aer Lingus, insulting him in Dail Eireann on more than one occasion.
Denis O’Brien has purchased 2% of Aer Lingus shares and has ambitions to be the new Aer Lingus chairman. This would be a fascinating development considering the problems he is having with the Moriarity Tribunal. Would Siptu support his chairmanship?
Then we have the ESOT a new breed of entrepreneur. Conceived by the trade union movement the ESOT acts like any other vested interest and is not bound by any notions of confraternity, one for all etc. As a Siptu member myself I feel absolutely no affinity with either the Eircom or Aer Lingus ESOT. .
In the history of Aer Lingus it entered into an anti-compete agreement with British Airways to ensure massive profits on the Dublin -London route. This was effectively acting almost as an enemy of the state and prevented significant numbers of Irish emigrants returning home on a regular basis. In effect Aer Lingus and British airways ran a monopoly on the Dublin London Route. We are now told that the proposed merger would create an anti competitive monopoly.
The takeover is a fascinating story. Can it get any better?

Muggy Dev

Not widely known is the fact that EI profits fell by 32% last year on a
reduction of turnover of 2.5%.These figures imply a massive increase in
costs for the period.Irrespective of FR, EI must now tackle waste and
overmanning if it is to compete and satisfy the markets.

The unions, who would normally be expected to fight these cuts
vigorously, now find themselves in a bit of a bind. If they disrupt the
airline through industrial action, the value of their staff's holdings
will plummet in value.In this respect the pilots in particular are very
vulnerable. But the inevitable and by far the most serious consequence
of such disruption will be the loss of confidence on the part of the
shareholders in both the Board and the company.Institutional
investors,under these circumstances, will sell to FR sooner rather than
later.

So Mannion has some leverage. Cuts under him or cuts and ownership under
FR. The EI board will have to be bold,decisive and ruthless.The good
news for O'Leary is that they show no signs of ever being such.Their
botched attempt to draw a line in the sand on the issue of costs this
week was just the latest example of a senior executive team petrified by
its unions.

My own view is that O'Leary will ultimately prevail, but within a 2 to
5 year time frame. The fact that FR did not, as widely expected,
increase the value of their offer would suggest that they're in for the
medium to long term.

All good things come............

kevin

piraka

Muggy Dev wrote:

The unions, who would normally be expected to fight these cuts
vigorously, now find themselves in a bit of a bind. If they disrupt the
airline through industrial action, the value of their staff's holdings
will plummet in value.

That is an interesting "have you by the b*lls" scenario. Surely the existence of the ESOT is contary to the ethos of the union. I suppose everyone has the right to be capitialist if it suits.

Victor

Even Ryanair pilots are buying AL shares, otherwise they are down to one potential employer (excluding Aer Arann).

TempestSabre

Victor wrote:

Even Ryanair pilots are buying AL shares, otherwise they are down to one potential employer (excluding Aer Arann).

Realistically most pilots will think this is last ditch attempt to stay working in Ireland and maintain their career seniority.

If Ryanair got control of AL, AL pilots realise that O'Leary has the pilots specifically in his sights for some reason and they could expect to be poorly treated, and that their union will be powerless. He'll control the industry in this country. So a lot of them would end up being based in the UK anyway. They'll likely lose their seniority, and would also likely lose this if they move to another airline somewhere else in world.

So if Ryanair gain control, its probably the end of a career and their life in Ireland. They'll have to move out of the country, and lose seniority. Since pilots are well off they can afford to gamble and fight for their career in Ireland.

For O'Leary this a bet each way. if he loses and the airline fights him off he gains on his shares. If wins the battle then he still wins. I suspect either AL will limp along for a long time, but sooner or later RA will win or something else will happen that it no longer matters.

flogen

Muggy Dev wrote:

My own view is that O'Leary will ultimately prevail, but within a 2 to
5 year time frame. The fact that FR did not, as widely expected,
increase the value of their offer would suggest that they're in for the
medium to long term.

All good things come............

kevin

O'Leary would be stupid to up his offer before an EU decision on the competition issue; once he knows 100% that there is no red-tape in his path he'll be free to offer extra, if he upped the offer now he could end up buying shares at 2.90+ a pop, only to find that he has to sell them off the week after for well below that amount.
Keep in mind that he paid something like 2.35 per share for the vast majority of his holding, so even if the bid lapses he's almost certain to still be faced with a potential profit should he sell off.

I don't think he's going to sell off, however, as having a stake in Aer Lingus is a great way to keep others away from the company (if both Ryanair and the Government refuse to sell up under any circumstances there would be 47% of shares blocked, even more than the amount blocked at the moment).

I don't see the logic in trying to attract Aer Lingus staff by promising to cut them down to the bone; ESOT know there will be job cuts but while Mannion will probably cut as many as it takes, O'Leary will cut as many as he can.

Muggy Dev

I don't think FR will have much difficulty with the EU on the competion issue.I'm not too well up on the small print on this but the Air France/KLM tie up created the precident on a much larger scale.

I doubt whether FR will increase their offer in time.What's the point? O'Leary knows that given the present shareholder structure, the only credible chance of an aquisition is for the EI board to fail.By this time next year, Mannion had better have some good numbers to report

Colonel Sanders

the unions response is to be expected as when any state body is privatised the workers start to fear. The happy days of over manning, no one looking at the cost base etc. is over. The good times have finished and they don't like it. Aer lingus will have to face up to the realities of market economics and cut costs and probably jobs to survive in the cut throat aviation industry.

Macy

Because obviously the Unions didn't accept job losses and work practice changes to turn Aer Lingus around. :rolleyes:

Any panic job cuts that have been suggested are purely down to privatisation and the need to increase profits. There was already arrangements for further cost cutting, done in a sustainable and planned way. This would have continued the net contribution of money coming into the exchequer rather than shareholders that Aer Lingus was providing.

Pjproby I'm not sure what affinity you'd expect to have with a particular employments ESOT. They're there as a protection for that companies employee's, not for the wider Union Membership. In both cases SIPTU fought privatisation, and in both cases has been proved right! The Government could have just kept hold of Aer Lingus, and used it's net contribution going forward to pay for hospital beds (or more subsidies to continue to privatise hospitals as is there want at the moment). Quite what you're doing in a Trade Union when you take such pleasure in workers facing into losses of jobs and conditions of employment, let alone championing the cause of a man who refuses to recognise unions, is beyond me.

Macy I disagree with most of that.
The government wouldnt have been able or have the spine to make the necessary cuts whilst they owned all the airline so we would have been left with a fat over manned EI waiting for the next airline crisis to bleed the exchequer and our taxes dry.
I'm sorry but theres plenty of other places tax payers money can go besides subsidising air travel.
Yes you would be asking for the subsidisation of air travel-how insane is that?
Very insane!

Air travel is not a public service remit,its not an essential public service either,its a supply and demand service.

This being an island there will always be a good demand and ergo there will always be a good supply for air travel including EI.

But given the fluctuating oil costs and the variations in demand due to public fears due to a terrorism plots (every now and again) an airline needs to be effecient,super effecient and not just ordinary effecient.
Having a safety valve of our taxes in a downturn when EI's fatness would be exposed is simply not on.

Macy

But that's exactly what the state owned Aer Lingus has done in the last number of years ffs. How do you think it was turned around - management and unions working together reducing costs, changing work practices, providing the state with a net contribution.

It may be providing the state with a net contribution from time to time,but factor in the cost of airplanes and that net contribution would be spread very thin.

Of course theres a contribution now in the good times-but have they paid for all the state has put in to date? say in the last 20 years ?

It's cut and shut imho,the private sector can provide that service without affecting or risking the public coffers.

Macy

Tristrame wrote:

It may be providing the state with a net contribution from time to time,but factor in the cost of airplanes and that net contribution would be spread very thin.

Well it appears that the new private sector shareholders feel that it can make the repayments and provide a profit. I see no reason why that shouldn't be the case if still in the Public Sector.

Tristrame wrote:

Of course theres a contribution now in the good times-but have they paid for all the state has put in to date? say in the last 20 years ?

So the solution is to sell it off below market price for a quick undervalued buck? As opposed to continue with current successul plans going in the future where it could pay back long term?

Tristrame wrote:

It's cut and shut imho,the private sector can provide that service without affecting or risking the public coffers.

That remains to be seen. Afterall eircom and our resultant telecoms infrastructure has shown what a success private monopolies are in the Irish market place.

Mad Finn

What I find so sterile about the Ryanair/Aer Lingus debate is the finger pointing and points scoring between left and right which deflects interest away from the real issue: is it good for the Irish people that Ryanair own Aer Lingus?

If it is then let mother market take her course and let O'Leary take it over.

If it is not, then we should insist that the government do what it can--not very much but it is a large shareholder in its own right--to block it and we should support the people who are trying with their own sweat and funds to keep Aer Lingus out of Ryanair's clutches.

Trade Unionists who say 'We told you this was going to happen. It should never have been sold .Renationalise now like Air New Zealand did' are pathetic. I never saw one piece of speculation that AL was a Ryanair target.

Even more cynical are those on the right who say: 'How hypocritical of the unions to be converts to competition now after demanding state monopolies for years' They seem to be changing their tune in the manner of Napoleon the Pig in Animal Farm from 'Competition Good; Monopoly Bad!' to 'Competition Good; Monopoly Better!!! (as long as the monopolist is on our side)'

I think a Ryanair takeover would be a disaster. I just don't believe O'Leary when he says he would keep AL going as a competitor to Ryaniar. It doesn't make sense. The only possible advantage would be to have a lever on airport charges by threatening to cancel the route and still be able to offer another alternative to a nearby airport. (like he did with Cardiff and Bristol) But then that is a bluff which if called removes the weapon from the airline so he will only be able to do it once per route.

He will asset strip AL and take the routes he wants, ditching the ones he doesn't. In some cases he will ditch current Ryanair routes in favour of existing AL ones. Why fly to Bergamo (RA) when you can fly to Milan (AL) just down the road? He will convert AL from Airbus to Boeing. (core RA value--fleet uniformity) He will get rid of long haul which neither he nor his shareholders want. And then he will gradually increase prices on the hitherto most competitive and cost effective routes.

No more 1c (+ charges and tax of about 60 euro) flights to London or Paris people. Or if there are any, it will be the first two seats on the plane.

Say no to merger people.

In your own best interests.

Macy

Macy wrote:

Well it appears that the new private sector shareholders feel that it can make the repayments and provide a profit. I see no reason why that shouldn't be the case if still in the Public Sector.

I'm sure it could work in either.
However in the public sector it would occasionally need tax payers funds to prop it up.The private sector would simply cut some more fat from it.
Governments and particularally this one would be too slow under union pressure to do any more of that and this would I feel end up with more tax payers money going to subsidise peoples holidays.

So the solution is to sell it off below market price for a quick undervalued buck? As opposed to continue with current successul plans going in the future where it could pay back long term?

What pay back? Do you really think that the government would be best placed to cut the jobs from it and cut the routes if and when the next crisis comes?
Airlining is a fickle business.

That remains to be seen. Afterall eircom and our resultant telecoms infrastructure has shown what a success private monopolies are in the Irish market place.

The airline industry and the telecoms sector are completely different.
Eircom shouldnt in my opinion own exchanges and telephone lines imho.They should be as much a part of publically owned infrastructure as roads.
Airplanes should not.

You might have a case if there was a fear that the market into an Ireland could not be cheaply served by private operators but that doesnt stand up given the expansion of Ryan air despite the huge hick ups in the aviation industry in recent years and the unfair subsidisation of the EI holiday makers.

Muggy Dev

Mad Finn wrote:

I just don't believe O'Leary when he says he would keep AL going as a competitor to Ryaniar. It doesn't make sense.

On the contrary M.F.

If FR were to liquidize the EI brand then there would be but one (main) carrier on the U.K. to Dublin route.A competitor would swiftly move in and FR would inevitably lose revenue and market share.By keeping the EI brand, FR can effectively control this vital air corridor by detering others thinking of launching new services.Think about it.Why the hell have BA not gone after the crown jewels after all these years? They pulled out years ago and BMI are stuggling now with low load numbers.

So if the takeover goes ahead at some future stage and FR begin to slip on the Irish Sea routes,they can relax in the knowledge that their losses will be their wholely owned subsiduary's gain.

Does anyone else hate the Halloween graphics?

Muggy Dev

Muggy Dev wrote:

Does anyone else hate the Halloween graphics?

[ot] http://pie.boards.ie/vbulletin/index.php?styleid=30 [/ot]

sovtek

Tristrame wrote:

It's cut and shut imho,the private sector can provide that service without affecting or risking the public coffers.

I'm trying to remember the last time a private airline funded the airport it uses, radar systems and traffic control personell, the mass transit system its customers get to said airport with (nevermind that air travel is also mass transit, especially on an ISLAND).

PhoenixRising

Tristrame wrote:

Macy I disagree with most of that.
The government wouldnt have been able or have the spine to make the necessary cuts whilst they owned all the airline so we would have been left with a fat over manned EI waiting for the next airline crisis to bleed the exchequer and our taxes dry.
I'm sorry but theres plenty of other places tax payers money can go besides subsidising air travel.
Yes you would be asking for the subsidisation of air travel-how insane is that?
Very insane!

Governments are prohibited under EU law from investing money in to state-owned airlines which are losing money, and have been since at least the late 90's. The last contribution the Irish Government made to Aer Lingus was in the mid-nineties, some 10 years ago, so they could not use tax-payers money to prop it up in the future as you suggest.

FlutterinBantam

Aer Lingus unit costs and work practices are way behind those of FR at the moment,looking at from a management point of view.

One way or the other the crunch period has arrived.Mr Mannion will now have to implement the changes proposed by W Walsh 3 years ago.

In my opinion,there is an economic case for outsourcing catering,baggage handling, check-in etc.Ground handling charges for EI are off the wall compared to its competitor FR. This will be the axis of action over the next year or so.

watch this space.

sovtek

sovtek wrote:

I'm trying to remember the last time a private airline funded the airport it uses, radar systems and traffic control personell, the mass transit system its customers get to said airport with (nevermind that air travel is also mass transit, especially on an ISLAND).

I wasnt talking about the airports,I was talking about the airline.

PhoenixRising wrote:

Governments are prohibited under EU law from investing money in to state-owned airlines which are losing money, and have been since at least the late 90's. The last contribution the Irish Government made to Aer Lingus was in the mid-nineties, some 10 years ago, so they could not use tax-payers money to prop it up in the future as you suggest.

I disagree.
Were not Siptu wanting the government to buy planes for EI in full public ownership? Those planes if bought wouldnt just disappear when a shock puts the airline into the red.
They would be a nice capital subsidy on peoples holidays.

Macy

Tristrame wrote:

I'm sure it could work in either.
However in the public sector it would occasionally need tax payers funds to prop it up.The private sector would simply cut some more fat from it.
Governments and particularally this one would be too slow under union pressure to do any more of that and this would I feel end up with more tax payers money going to subsidise peoples holidays.

What pay back? Do you really think that the government would be best placed to cut the jobs from it and cut the routes if and when the next crisis comes?
Airlining is a fickle business.

But Aer Lingus under state control has cut fat - it's reduced numbers and reduced costs. You keep ignoring this point - Aer Lingus was turned around whilst under state control. Why should that not happen going forward too? The Government aren't allowed to give straight bail outs anymore anyway, it could, however, have invested in the company to allow it to buy/ lease more planes (despite the FF/PD lies on this issue).

Tristrame wrote:

The airline industry and the telecoms sector are completely different.
Eircom shouldnt in my opinion own exchanges and telephone lines imho.They should be as much a part of publically owned infrastructure as roads.
Airplanes should not.

Different sectors, same failed privatisation policy, same result if Ryanair take over i.e. One private monopoly.

Tristrame wrote:

You might have a case if there was a fear that the market into an Ireland could not be cheaply served by private operators but that doesnt stand up given the expansion of Ryan air despite the huge hick ups in the aviation industry in recent years and the unfair subsidisation of the EI holiday makers.

What subsidisation of Aer Lingus in recent years? It's been making a profit for the tax payer. If they get a monopoly situation there will be no incentive for them to keep prices down.

sovtek

Tristrame wrote:

I wasnt talking about the airports,I was talking about the airline.

Who do you think pays for those airports?

Macy

Tristrame wrote:

Were not Siptu wanting the government to buy planes for EI in full public ownership? Those planes if bought wouldnt just disappear when a shock puts the airline into the red.
They would be a nice capital subsidy on peoples holidays.

No, SIPTU were saying the Government could invest the money to allow Aer Lingus to buy the planes. It would be the equivalent of borrowing the deposit money for a house. This would allow Aer Lingus to borrow on the commercial markets. This would've been totally within EU laws (The Government have lied that it was against the rules). I doubt there'll be as big a shock as 9/11 again.

There would be no more subsidy on "peoples holidays" as there will be now. Rather than use the budget surplus to invest the money, the money raised from Privatisation will be used instead. The borrowing will be the same, so have the same effect on prices.

Macy

Mad Finn wrote:

If it is not, then we should insist that the government do what it can--not very much but it is a large shareholder in its own right--to block it

There's one thing they could do if there were serious - buy back shares.

Macy

Macy wrote:

But Aer Lingus under state control has cut fat - it's reduced numbers and reduced costs. You keep ignoring this point

No I'm not,I know we are where we are but more cuts would be like taking blood from a stone judging from the way Mr Halpenny goes on when he's on primetime.

- Aer Lingus was turned around whilst under state control. Why should that not happen going forward too?

Union pressure.

The Government aren't allowed to give straight bail outs anymore anyway, it could, however, have invested in the company to allow it to buy/ lease more planes (despite the FF/PD lies on this issue).

I've already stated what that amounts to--a willfull misuse of tax payers money to subsidise peoples EI only holidays.

Different sectors, same failed privatisation policy, same result if Ryanair take over i.e. One private monopoly.

You can't carte blanche compare different sectors,you must compare like with like.

What subsidisation of Aer Lingus in recent years? It's been making a profit for the tax payer. If they get a monopoly situation there will be no incentive for them to keep prices down.

If you trace back their capital assets,they have to have a percentage of government funds (our money) tied up in them.That is not available specially to private enterprise airlines.

No, SIPTU were saying the Government could invest the money to allow Aer Lingus to buy the planes.

Thats a government subsidy for peoples holidays only if they use EI full stop and thats not on.
It's not on to use public funds for such a discretionary luxury.

sovtek wrote:

Who do you think pays for those airports?

Are we in the same thread sovtek?
I'm talking about airlines you are talking about airports.

But seeing as you ask,landing charges(and passenger taxes) pay in large part for those airports and who do you think pay landing charges?

Macy wrote:

There's one thing they could do if there were serious - buy back shares.

Thats as completely economically ridiculous as trying to say that the government putting in money wouldnt be subsidising EI fares and aiding unfair competition against private airlines.

pjproby

aer lingus was turned around under the stewardship of willie walsh who was effectively forced out by bertie ahern. the ultimate irony is that o'leary will implement walsh's agenda if he ever gains control.
aer lingus is the ultimate sacred cow used and abused by fianna fail who believe that the seats of a number of their northside td's depend on its survival.
another irony is that if willie walsh had succeeded we would not now be worried about competition.
my point about siptu was that in the past they were quite prepared to tolerate the aer lingus-ba monopoly on the dublin london route not only at the expense of the irish people but also at the expense of the majority of siptu members.
another example of the sacred cow perhaps

FlutterinBantam

Willie Walsh turned Aer lingus around to a certain extent.
There is a lot more turning around to be done,in fact, the real stuff has not yet started.

SIPTU fully realise that Dublin Airport in general is its "Alamo" both in regard to strategic importance and revenue,so they are not likely to succumb without a fight.

A lot done but more to do;)

PhoenixRising

Tristrame wrote:

I disagree.
Were not Siptu wanting the government to buy planes for EI in full public ownership? Those planes if bought wouldnt just disappear when a shock puts the airline into the red.
They would be a nice capital subsidy on peoples holidays.

Unfortunately you cannot disagree with a fact. That's the EU law on the matter, so that part of your previous argument is defunct.

Aer Lingus has in recent times been a net contributor to the Irish Exchequer, so I fail to see how the Government is subsidising peoples holidays by making an investment in a profitable company which returns it's profits to the exchequer. It's a moot point now anyway as the company is no longer in state hands..

Victor

FlutterinBantam wrote:

Aer Lingus unit costs and work practices are way behind those of FR at the moment,looking at from a management point of view.

So, what is the unit cost for Ryanair to fly to the United States?. What is the unit cost for Ryanair to make a sandwich? What is the unit cost for Ryanair to unload an aircraft?

The businesses are different and you can't blandly compare them. MO'L as much admitted it when he refused to go on the Late, Late Show a few years ago when he was exposed as telling mis-truths about FR -v- AL flight prices.

FlutterinBantam

Victor,I was stating fact here not making comparisons

However ,if you want to evaluate the comparable aircraft turnarounds,here is a rough example.

FR: Non contact stand,push steps,no cleaners,no catering,cabin crew bring the passengers into the building,one cabin crew boards the outbound,probably four operatives in the unloading crew,one pushes back a/c with tug.

EI:non contact stand,steps driver,boarding person to escort passengers in,cleaners,possibly catering removal,aircraft handler,at least five to unload containerised baggage,dispatch agent,passengers boarded by gate staff,someone to escort them out,aircraft pushed back by aircraft handler.

Now thats a very rough scenario but I think it demonstrates the obvious differences.