Irish government to sell Aer Lingus stake to IAG

The Irish government agreed on Tuesday to sell its 25% stake in Aer Lingus to International Consolidated Airlines Group (IAG), owner of British Airways and Spain's Iberia, for €2.55 per share.

Ireland's transport minister Pascal Donohue confirmed the sale and added that IAG had provided certain commitments in relation to its proposal, following the demands presented to IAG by the Irish government in February in order to consider the sale.

IAG agreed to maintain the flight routes between Heathrow and Dublin, Cork and Shannon for at least seven years and to maintain Aer Lingus' head office in Ireland.

Supporting IAG’s offer for Aer Lingus is the best way of securing Aer Lingus’ future in an increasingly-competitive global airline market

“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 and of enhancing Ireland’s connectivity with the rest of the world and our potential for growth and development into the future,” Donohue added.

The trnsaction was opposed by the two main opposition parties in Ireland, the Fianna Fáil and the Sinn Féin.

"This is a compelling transaction for Aer Lingus, its shareholders, its employees, its customers and for Ireland, “ Colm Barrington, Aer Lingus' chairman said in a statement.

"The company will reap the commercial and strategic benefits of being part of the much larger and globally diverse IAG Group."

IAG's CEO Willie Walsh said that under the deal "Aer Lingus would maintain control of its brand and operation while gaining strength as part of a profitable and sustainable airline group in an industry that's consolidating".

Read more: IAG chief "relaxed" about timing of Aer Lingus takeover bid

"Ireland's vital air links to Europe and North America would be enhanced, creating new jobs, with cast-iron guarantees on ownership of Aer Lingus' Heathrow slots," he added.

Ryanair owns 29% of Aer Lingus shares, and was told by competition authorities that it must sell down its stake after its own takeover bids were blocked.

“The board of Ryanair has not received an offer and will consider any offer on its merits, if and when an offer is made,” a spokesman for Ryanair said.

Market's comment

Credit Suisse's analysts believe the deal has a strategic relevance, and believe it should be earnings accretive. They also consider this agreement would provide a valuable complement to IAG's crucial transatlantic business via its Dublin hub with US CBP/immigration pre-clearance, expand IAG's UK footprint and inject further low cost/value DNA into the group to supplement Vueling and Iberia Express, “making sustainable BA and group short haul profit increasingly credible in our view.”

“While a perceived oil price recovery will be weighing on airlines, the potential size of this hurdle could reassure investors nervous of a large impending purchase,” Accendo Markets' Augustin Eden said.

As of 09:48BST IAG's shares were up 1.01% at 550.00p.

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