October 7, 2006

Seconds out for the big fight: Michael O'Leary vs The Rest

Posted 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.

  1. Glen Quinn

    I Hope Michael wins. We need business leaders like him to
    run Irish businesses productively. As far as I can see
    most Irish businesses are run by gobshits and there idiocy
    costs jobs e.g look at Iona, Trintech etc. The list is

    The Irish goverment is corrupt with bribes flying left and
    right and it didn’t just happen with one party there all
    doing it. We need new meat in goverment. We need stronger
    leaders to lead the country not gobshits and sheep.

    Aer Lingus under the goverment was a disaster. It was a
    loss making enterprise for decades wich charged consumers
    very very high prices in the years before Ryanair. When
    Ryanair came along it showed up Aer Lingus. Lets also not
    forget that in the early years the Goverment tried to put
    Ryanair out of business.

    The goverment also dealt in shappy trick with other
    business that tried to break up there monoply like Esat,
    TV3, Viridian (Northern Ireland electricity provider) and
    various coach services that tried to bring in bus routes
    to compete with CIE.

    I have absolutly no respect for the tricksters and liers
    that we call the Irish Goverment. When you sell something
    you sell it. Also I would prefer an Irish company to buy
    Aer Lingus and Ryanair is that Irish company. The
    goverment also turned down a golden oportunity with Wily
    Walshe but they rebuked and scalded him and now the
    goverment are getting there just deserts. If you do
    something wrong it will turn around and bite you in the

  2. Billy

    The neational interest is to have a competitive aviation
    sector. Not some fat pseudocommies from the union dictating
    a slow pace.

    I think Ryanair should fly all the Union “leadership” out to
    North Korea or to Kazahkstan and leave them there with their
    brothers. The pig ignorance of the unions and their petty
    money grabbing ways needs to go the way of the T-Rex. I
    have had personal experience of the unions during a dispute
    and the swaggering bully boy tactics of the senior trade
    unionists is the most breathtaking show of ignorance and
    brute force I have ever seen.

    Competition is good. The unions want a handy number and as
    we have seen this government sways towards the highest
    bidder. So get the brown envelopes out lads and turn Aer
    Lingus back into a small regional airline with sky high
    costs and sky high prices.

  3. Paul

    In response to Billy’s comment. I too had some personal
    experience with unions in a dispute, although i was way
    down the food chain i took part as an observer who just
    had a vote on strike or no strike.
    It seemed to me that the unions main objective and goal
    was to destroy the company and put it out of business.
    Most people that voted for the strike had several years
    experience as aircraft mechanics and were hoping for a
    redundancy pay off. No mention whatsoever about the fact
    that shareholders had to have their needs catered for
    also, and that aviation was in a difficult ecconomic
    phase. Just loads of comments in meetings; “lets stick
    together and fight the management”, it made me sick.

  4. Aidan

    As far as I can see the unions represent the workers in
    this country who already have the best working conditions
    notably public servants and semi state employees. Then
    they fight to get even better conditions for these already
    favoured workers. However the workers at the bottom
    earning the lowest wages with the worst conditions are by
    and large not represented and are largely ignored. Why the
    big hu ha over Aer lingus workers. Why should these
    workers be given preferential treatment over and above
    other workers in the state. I think the focus should be
    switched to raising the basic working conditions of all
    workers in the state and maybe forcing ryanair to provide
    better working conditions for its workers rather than
    focussing solely on the plight of aer lingus workers.
    There was no dail debate about all the donegal textile
    workers who lost their jobs in the last few years.

  5. CiaranMc

    Ryanair’s bid for Aer Lingus is certainly very interesting,
    but I wouldn’t agree that this is somehow a battle for the
    “heart and soul of corporate Ireland”. I think David is
    exaggerating here. He made it sound like the government is
    somehow against a free market. This government has favoured
    business, big business, more than any other, with its
    driving down of corporation taxes and its soft regulatory
    touch. Further, the fact that we are having a debate about
    privatised Aer Lingus after a privatised Telecom Eireann,
    both executed by this coaltion, makes it clear that these
    guys are prepared to follow where Britain and America led in
    the 80s. So don’t worry, despite the whinging, corporate
    Ireland is happy enough with this lot. The bid for Aer
    Lingus is only interesting because of the clash of
    personalities and histories: the dour, Cullen versus the
    fiery O’Leary; a cautious government, concerned by how
    voters perceive the sale of a flag carrier versus the risk
    taking and, naturally, purely profit driven Ryanair. One
    way or another, we will be able to fly from Dublin to a
    variety of destinations on a myriad of carriers – so long as
    we can pay for it. Whether the tailfin carries the Aer
    Lingus shamrock, Ryanair’s harp, or the orange of Easijet
    hardly matters.

  6. Ronan

    The problem isn’t that the government owns Aer Lingus. It’s
    that Aer Lingus own the government.

    Really I’m talking more generally about the semi-state
    sector but it’s true in general. Aer Rianta and Aer Lingus
    have dictated government policy for years instead of the
    other way around. They got whatever they want. The final
    sale price of Aer Lingus is a disgrace. The government
    wanted lots of money from the sale of Eircom. With the sale
    of Aer Lingus however they wanted to get rid of Aer Lingus
    before the airline industry went sour again. They didn’t
    care one little bit about money. A “successfull” flotation
    was all important. Hence the reason small investors weren’t
    given their chance (to get burned). Ryanair are willing to
    pay a 30% premium and the goverment are unhappy. They would
    have been unhappy if Ryanair had offered them the 30%
    premium on 100% of the shares before the flotation.

    Aer Lingus was flogged off for a quiet life and the
    government were willing to pay off the unions and vested
    interests to ensure it happened with a lower price. There is
    only one other company which would have a sufficient
    interest in owning Aer Lingus in the long term. That company
    is Easyjet. Ryanair fought tooth and nail to keep them out
    of Ireland last time but buying Aer Lingus would give them a
    foothold that not even Ryanair could dislodge. The problem
    is that unlike Ryanair, Easyjet would not want to keep the
    Aer Lingus brand. There’re pretty much the largest European
    airline not operating in Ireland. They would be great for
    competition (and they use Airbus) but they’d pull out of
    Ireland in a second if they wanted to.

    The people clamouring loudest against Ryanair on competition
    grounds haven’t mentioned Easyjet. That’s because
    competition is a red herring. Airlines could move into
    profitable Dublin routes overnight and Aer Arann would be
    the first to take on Ryanair if the prices were jacked up.

    The biggest effect of this takeover would be on Aer Rianta
    not on Aer Lingus. The unions are entrenched in Aer Lingus
    and would stop Ryanair from the sort of reforms Ryanair do
    best. But Dublin Airport needs a new terminal and Ryanair
    have embarrassed the goverment in that area. They’d call all
    the shots if they owned Aer Lingus. Ryanair are becoming (or
    have become) the biggest airline in Shannon. The Shannon
    stopover is a dinosaur that Ryanair could kill off in the
    name of direct flights from Dublin to the US, Canada and the
    Carribean. Shannon wouldn’t even lose out as an airport.

    Many commentators seem to have missed the simple fact that
    Ryanair buying Aer Lingus is actually one of the best things
    that could have happened. Ryanair have a great brand with
    great prospects but they know better than anyone it’s
    limitations. Aer Lingus does not have those. Rather than
    cannabalising Aer Lingus they can make it great again
    because Aer Lingus as a brand has certain advantages on
    transatlantic routes. Ryanair have ambitions for
    transatlantic routes but it requires a different skill set
    from short-haul. The things that make Ryanair most efficient
    are it’s rapid turnaround, lack of meals, regional airports
    and productive staff.

    Shaving 10 minutes off turnaround isn’t worth anything when
    you can only fly twice a day anyway. Passengers want to be
    fed on longer flights and many regional airports are too
    small for the bigger planes. But that doesn’t mean that
    medium to long haul isn’t ready for a revolution.

  7. A.N. Other

    The discussion is about irish enterprise. no one ever asked
    about the businesses that rely on air travel. In the nu
    perfect Éire, every business relies on air travel to conduct
    their operations. If Ryanair buys AerLingus then Ryanair
    effectively becomes the NTR of the air line industry.

    No business can move goods/people along the M50 without
    experiencing time delays and tolls because of NTR. Very soon
    every business/customer will only have one option to travel
    by air. Remember, Ryanair doesn’t sell all their seats on
    the cheap.

    As for the long haul carrier, I’m sure businessmen are
    hoping that Willie Walshe will introduce BA transatlantic
    flights from Ireland.

  8. Allen

    Funny thing is that without Micheal O’Leary, this ‘valuable state asset’ (often an oxymoron) would probably have been taken over by Emirates or EasyJet. And the staff would end up replaced anyway. What this latest conflict shows is the faultline in Irish society that was exposed in the SAIPAN Incident between Roy Keane and the FAI Bosses.
    For many years most conflicts/scandals/allegations have developed along the lines of Reason vs. Authority. If you think I am making this up, I sugest that you read Ronan Fanning’s landmark article following the Roy Keane Saipan Incident in 2002.
    In the historical perspective this is quite similar to our nearest continental neighbour. A Republic, with a anti-Anglo-Saxon bias, many shades of Catholicism, an activist peasantry, a powerful capital city trying to control disparite regions each of which is trying to express themselves and at the same time behave nationalistically, continual demands for ‘justice’, and of course it’s political centralism – France. In France, Post DeGaulle, the conflict is much more resolved than it is in Ireland. But it does emerge every now and then again – and authority in France si thrown into a tizzy until it is resolved. In Ireland such moments are much more placid, because there is a fear of the situation getting out of hand and certain Northern oriented extremists taking control.
    We need Michael O’Leary, Eamon Dunphy, Roy Keane, Eddie Hobbs, Albert Reynolds, Alan Dukes, and people of this mindset – because they are non-conformists, and conformity is the death of progress, renewal, openess, justice, fairness, improvement. In Ireland there is a continual effort by those in power or wealth to create the conformity for others. When this stops, maybe then we will see greater purpose as a country. Maybe then will Robert Emmet’s epitaph be considered. But the process of becomming a spontaneous, growing, blossoming society is smothered in consumerism, lifelstyle, debt, taxes to vested interests like the rip-offs exposed in Eddie Hobbs documentaries.
    We are lucky to have such nonconformists because they raise the issues before they become a problem that is out of control. We are unlucky that the power of conformity is so strong as it often is, delaying the process considerably. Maybe our ability to innovate (as Albert Reynolds said) is what will develop our society as well as our economy.

  9. Allen

    Amused by your mention about Warren Buffet saying that airlines are a bad investment. I think I remember one of the trade union bosses saying that the government should instruct the National Pension Fund caretaker organization to buy shares in Aer Lingus. In effect he was trying to make it a state owned organization by the back door. He clearly was not one bit concerned about the pensions of the rest of us (that would be the rest of us workers there comrade). And like any good socialist who knows nothing about return on investment, he never consulted with Warren Buffer either….

  10. games…

    The real lesson from……

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