October 7, 2006
Seconds out for the big fight: Michael O'Leary vs The RestPosted in Ireland · 10 comments ·
This war pits Michael O’Leary against everyone he has fought in the past 15 years. It’s time to sit back, get front row seats and enjoy the scrap.
We are about to see a battle for the heart and soul of corporate Ireland. O’Leary versus the establishment signals that we have come full circle since the days of Ireland being run by cosy corporations, trade unions, politicians and favoured middle men. Doubtless Ryanair is a big company, but O’Leary is an outsider.
He might be enormously wealthy, but he is still a maverick. He remains – of his own choice – firmly outside the tent. This is what will make the confrontation fascinating. In a country of prevaricators, spoofers, spinners and people in high places who won’t admit something is plainly wrong, Michael O’Leary is a straight-talker who is honest and tells it as he sees it, in plain English. Whether you like what comes out of his mouth or not, you have to admit that, with Ryanair, you know where you stand.
Contrast this refreshing, if not always welcome, bluntness with the pathetic, lily-livered carry-on we witnessed in the Dail last week where our so-called ‘leaders’ – from the Taoiseach down – came out with manure like it was “not incorrect”, “ill-advised” or “inappropriate”, instead of just wrong. Do they think we are fools? On one level, the battle is about these people versus O’Leary. The government has said it won’t sell its stake in Aer Lingus now that the airline is in play. Why not?
What leverage will, or should, the government have over an airline? You can’t have it both ways. Once you put your house up for sale,you have no business vetting the buyer. It amazes me that the overwhelming reaction to Ryanair’s bid is surprise. What is even vaguely surprising about the biggest airline in the country being a possible buyer of the next biggest? I would have thought that Ryanair was the most likely buyer. It is hard to image what the government’s advisers thought O’Leary and his top brass might have said to each other the day when the privatisation was first mooted.
Oh Mick, you see Aer Lingus is up for sale? Really? I didn’t see that. Tea? What page of the paper? Two sugars or one? What’s that got to do with us?
Nothing really, after all, it has eight million passengers who fly from this island, the best facilities in the airport we use, a good fleet, it’s just paid for its costly restructuring, it has just lost its chief executive and senior management team and it’s valued at a sixth of our outfit. Milk?
In fact, with our two billion of funds in the bank, we could buy it for cash. Is that a fact? But you’d never dream of buying it, Mick, would you? Nah. Do something useful and pass me the Racing Post. What’s the ground like at Galway for the 2.30?
Of course Ryanair would have been interested! It is probably the only interested party and, now that it has made its bid, it’s unlikely anyone else will jump.
For someone else to be found, the second suitor would have to be prepared (just like the Valentia consortium at Eircom) to do another sweetheart deal with unions, the government and the employees. When you have a near-monopoly like Eircom, that may be financially do-able; in a small airline like Aer Lingus, it would be commercial suicide. I could be wrong, but it’s fair to say that Ryanair is the only game in town.
The next obstacle for Ryanair is to get close to 94 per cent of the free float. The free float is the amount of shares that are out in the market with willing sellers. So given that the government and the unions and possibly employees won’t sell to O’Leary, 42 per cent of the shares are illiquid. This means he has to buy 51 per cent of the 58 per cent that are left. But this should not be too much trouble.
The question for fund managers is not why you would sell to Ryanair but why wouldn’t you? In a notoriously difficult business for an investor to make money, show me the fund manager who is today being offered a 30 per cent return on investment in two weeks who would dare to have Aer Lingus shares in his portfolio by next March. After all, it was Warren Buffett – the finest investor of all time – who remarked that no one had made money in the airline industry in the full century since the first manned flight. So only a fool will not sell.
Interestingly, the stockbroker community was unusually lukewarm in its response to the news. This is because the Ryanair bid effectively rules out further privatisations from which brokers make great money. The reason is simple: the unions are going ape. They will never allow a state asset to go to the market again. This means that no government run by Bertie Ahern will privatise anything again. Bad news for the brokers.
So now it’s over to the Competition Authority to stop O’Leary. Ryanair says this is a European, not an Irish, issue, and will argue – with validity – that history indicates that Ryanair cuts fares no matter whether it has a full monopoly or is in competition on routes. It is hard to argue with that position.
There is another angle. The government, unions and employees could offer a sweetheart deal (to use Bertie’s own 1993 expression) to Willie Walsh to come in and buy the airline for British Airways. When Eircom was privatised for the second time, the Valentia consortium accepted such a pill, guaranteeing conditions and so on.
However, sweating the assets of a fixed line telephone monopoly is a lot more feasible than sweating the assets of a small carrier with an angry Ryanair breathing down your neck. Equally, even if he was interested, Willie Walsh might enjoy the spectacle of Bertie squirming, given Bertie’s assassination of Walsh under Dail privilege not so long ago. The battle is on between the outsider and the insiders, the cosy and the jagged edge, for the heart and soul of corporate Ireland. If O’Leary wins, the ‘partnership alliance’ will be shattered.
If the partnership alliance wins, swashbuckling, brash enterprise will be knocked back. This is a turning point. Game on. Take your seats.