IAG, Ryanair In Potentional Deal For Aer Lingus Slots At London Heathrow Airport

December 18, 2012

British Airways (BA) parent International Airlines Group (IAG) has signed a non-binding agreement with Ryanair covering most of Aer Lingus’s slots at London Heathrow. Airport.
The IAG deal is part of the remedies package put together by Ryanair to address the European Commission’s (EC’s) concerns that its proposed takeover of Aer Lingus will impede competition on some 40 routes. Ryanair, which owns 29.8% of Aer Lingus, in June launched a takeover bid, which lapsed after the EC opened a formal investigation into the combination. The EC is expected to release the outcome of the ongoing Phase II investigation by Feb. 27.
“We have signed a non-binding memorandum of understanding (MOU) with Ryanair. The MOU is subject to the EU’s approval of Ryanair’s proposed takeover of Aer Lingus and IAG board approval,” an IAG spokeswoman confirmed to Aviation Week.
BA initially would lease the Aer Lingus slots and after a three- to five-year period, it would have the right to buy and redeploy the slots.
Aer Lingus is Heathrow’s third-largest slot holder, after BA and Virgin Atlantic Airways. The airline operates on average 23 daily roundtrip flights to the airport. It serves Dublin, Cork and Shannon in the Republic of Ireland and Belfast City Airport in Northern Ireland. BA would possibly base aircraft in Ireland and take over Aer Lingus’s services from Cork, Shannon and Dublin.
Aer Lingus told Aviation Week that the four Heathrow routes are among the 10 most profitable routes in its network, which spans more than 100 routes. If the EC will be favorable to the Ryanair-IAG deal remains to be seen, because it would create a BA monopoly on all four routes. BA currently competes with Aer Lingus on the Heathrow-Dublin and Dublin-Belfast City Airport segments. BA took over these two routes from BMI, when it bought the airline last year.
The deal might have wider repercussions for Virgin Atlantic Airways. Aer Lingus lost out in its bidding contest with Virgin Atlantic for Heathrow slots being disposed of by BA following the acquisition of BMI. Virgin Atlantic was awarded the 12 daily slot pairs and will use them to launch short-haul operations during the next IATA 2013 summer schedule. Aer Lingus reached a preliminary agreement to wet-lease four Airbus A320 aircraft to Virgin Atlantic to operate its domestic routes between London Heathrow and Manchester, Edinburgh and Aberdeen.
If the Ryanair-Aer Lingus deal receives EC clearance and Ryanair sheds Aer Lingus’s Heathrow slots to BA, Virgin Atlantic will have to look for a new partner to operate its short-haul flights.

Aer Lingus is confident the European regulators will once again reject the Ryanair takeover attempt. The carrier plans to source additional aircraft and flight crew to support the Virgin Atlantic deal. It currently operates 36 Airbus narrowbodies, and the fleet will increase by about 9% as a result of the new contract. The airline was scheduled to receive two new Airbus A319s next year and return two Airbus A320s to lessors, but these aircraft now will be retained if the agreement with Virgin Atlantic is firmed up.
The airline believes also that the combination of its own operations at Heathrow with the Virgin Atlantic wet-lease operations will result in additional efficiencies and savings due to economies of scale at the airport. Some analysts estimate that this agreement could boost earnings-per-share forecasts for Aer Lingus by about 5%.


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