LONDON—British Airways parent International
Consolidated Airlines Group S.A. expects the purchase of Aer Lingus
PLC to boost earnings soon after the deal closes and that the Irish
carrier would meet group-wide earnings targets.
Aer Lingus would be earnings accretive in the first full year
after the takeover closes, IAG Chief Executive Willie Walsh said on
a call on Wednesday.
"We see significant opportunity for the generation of revenue
synergies," he said without setting a financial target. Aer
Lingus's efficient operations limit the opportunity for cost
savings, though Mr. Walsh said there could be benefits in areas
such as aircraft leases and purchasing.
Aer Lingus would join the Oneworld alliance and a close business
partnership that IAG has with carriers such as American Airlines
Group Inc. and Finnair, Mr. Walsh said.
"The rationale for this acquisition is quite clear," Mr. Walsh
said. It would strengthen IAG's position on the lucrative
trans-Atlantic market and within the U.K., he said.
The Irish carrier would meet IAG targets of a 10% to 14%
operating margin and a return on invested capital of at least 12%
over the life of the business plan that stretches to 2020.
IAG, which first approached Aer Lingus about a takeover late
last year only to be rebuffed, on Tuesday received support for a
takeover under sweetened terms from the Irish government, which
owns about 25.1% of Aer Lingus stock and is the carrier's
second-largest shareholder.
"IAG has set out ambitious growth plans for the company and the
government is confident that supporting IAG's offer for Aer Lingus
is the best way of securing Aer Lingus' future in an increasingly
competitive global airline market," Irish transport minister
Paschal Donohoe said late on Tuesday.
Ryanair Holdings PLC, the largest shareholder in Aer Lingus with
a 29.8% stake, hasn't yet said if it supported the deal, saying
only it would assess any bid, not yet in hand, based on its
merits.
IAG is hopeful it will win the backing of Ryanair, Mr. Walsh
said, adding that "clearly there is still a long way to go."
The deal, if approved by Aer Lingus shareholders and antitrust
authorities, would strengthen IAG's hold on the lucrative
trans-Atlantic market that is a major driver of its profits. IAG
also would acquire more takeoff and landing slots at London
Heathrow airport, Europe's busiest hub.
Mr. Walsh played down antitrust concerns. IAG's proposal will be
reviewed by European and U.S. antitrust authorities. "If you look
at the city pair overlap, there isn't any significant overlap
between Aer Lingus and IAG airlines," Mr. Walsh said.
The takeover would be a coup for Mr. Walsh, himself Irish and a
previous boss of Aer Lingus, as he expands the reach of the airline
group that also includes Spain's Iberia and budget airline Vueling
SA.
There are pitfalls, though. IAG would have to "avoid the
hiccups" seen at Vueling, which has failed to grow its profit since
the acquisition, RBC Capital analyst Damian Brewer said. Aer Lingus
also has seen labor strife that may be a latent risk for IAG, he
said, while noting that IAG managed such conditions as part of its
turnaround plan for Iberia.
IAG said it would make an offer for Aer Lingus at €2.55
($2.89) a share in an all-cash deal comprising a share offer and a
cash dividend of five European cents a share. The deal values Aer
Lingus at €1.4 billion.
IAG's initial takeover offer in December was rebuffed, as was an
improved one in January. The Irish carrier's board in February came
out forcefully in support of the deal as Mr. Walsh made service
assurances to Irish lawmakers that Aer Lingus would grow under IAG.
The government had spent several weeks studying the terms and
negotiating with IAG over service guarantees.
One of the attractions to IAG of buying Aer Lingus is tapping
traffic from U.K. cities not well connected to Heathrow, Mr. Walsh
said. Ireland's agreement with the U.S. to allow passengers to
clear customs and immigration while at the Dublin and Shannon
airports was also of interest, he said.
Write to Robert Wall at robert.wall@wsj.com
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