Etihad takes 3 per cent stake in Aer Lingus

Etihad Airways has bought almost 3 per cent stake in Aer Lingus, a move which comes as Ireland's government looks to sell-off its quarter-share in the country's former national airline.

Aer Lingus is part-owned by the Irish government, which plans to sell stakes in state firms as part of an economic restructuring. Aidan Crawley / Bloomberg News

Etihad Airways has bought an almost 3 per cent stake in Aer Lingus, a move that comes as Ireland's government looks to sell its share in the country's former national airline.

The Irish government, which owns 25 per cent of the airline, wants to sell its stake as part of a sale of state assets under the nation's economic restructuring. It needs to rebuild after falling into recession and being forced to take a €67.5 billion (Dh328.6bn) bailout from the European Union and the IMF.

No timetable has been set for the sale but the government says it expects to raise up to €134 million.

There has been speculation that Etihad is interested in acquiring a substantial stake in the airline, but announcements yesterday confirmed only the minority shareholding and the desire to work together.

"Etihad Airways confirmed today it has acquired a 2.987 per cent stake in Aer Lingus," a spokesman for Etihad said yesterday. "The purchase reflects [Etihad's] desire to forge a commercial partnership with the Irish carrier. Etihad Airways believes a possible partnership could produce significant commercial benefits for both airlines."

Aer Lingus confirmed it was in discussions with Etihad over possible code-sharing and marketing opportunities, and added that the Abu Dhabi carrier had undertaken not to increase its holding while the talks were under way.

"There is no certainty as to the outcome of these discussions," Aer Lingus said.

The Irish Times yesterday reported that James Hogan, Etihad's president and chief executive, had told the newspaper he was "keen to have a look" at Aer Lingus when he was in Dublin last month to announce an extension of Etihad's sponsorship of the Gaelic Athletic Association, which promotes Ireland's national sport of hurling.

Etihad, which has been quietly acquiring its stake over recent months, used Bank of America and Merrill Lynch to buy about 11 million Aer Lingus shares on its behalf, the Irish Times said. The acquisition remained unreported, however, because under Irish stock market rules, Etihad was not obliged to disclose any shareholding under 3 per cent.

Etihad operates 10 flights a week between Abu Dhabi and Dublin and has carried more than 750,000 passengers between the two capitals since it began flying the route in July 2007. An Aer Lingus deal would feed Etihad's hub in Abu Dhabi with connecting traffic for Asia and Australia. Also part of the attraction for Aer Lingus is its generous entitlement of landing slots at London Heathrow, where capacity is tight.

On the downside is uncertainty over Aer Lingus's pension liabilities and whether the airline may have to contribute to a pension deficit of €700m as of the end of last year.

"The reality is that they [Etihad] are going to want to wait to see the pension issue cleared up first before they begin to act," said Brian Devine at NCB Stockbrokers.

Etihad used a similar approach last year before its acquisition of a stake in Air Berlin. In December, it increased its 2.99 per cent holding to 29.2 per cent via the purchase of €73m of new shares in the German airline.

Etihad agreed to provide five-year financing of up to €193m to support Air Berlin's fleet development, and in return, Etihad received a code-share agreement giving it access to Air Berlin's dense European short-haul network and to the German capital.

Etihad also owns 40 per cent of Air Seychelles.

Aer Lingus's shares have risen by about 16 per cent since the end of February, closing in Dublin on Monday at 97.5 cents. They closed at €1 on two days last month.

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