O'Leary keeps pressure up on Aer Lingus

Here's today installment in the Ryanair/Aer Lingus takeover battle. The two have been in a war of words again since Ryanair renewed its attempt to takeover its fellow Irish carrier before Christmas. Ryanair has since extended the deadline for acceptance of its offer, after securing only neglible formal take-up of its offer as of the original 5 January cut-off - an offer Aer Lingus describes as "fundamentally undervaluing the airline, its robust financial position, substantial competition issues" and which is therefore "not capable of completion".

Ryanair has already challenged as misleading the assertion the offer is not capable of completion by lodging a complaint with the Takover Panel and has today published a letter sent to Barrington questioning the carrier's arguments over its ability to remain independent.

Here's what they say:

Mr Colm Barrington

Chairman

Aer Lingus Group plc

Head Office

Dublin Airport

8 January 2009

Does Aer Lingus Really Have A Viable Independent Future?

Dear Chairman,

      We refer to your 22 December letter to all Aer Lingus shareholders in which you (wrongly) claimed that European airline consolidation is not really happening and that Aer Lingus' "independence" strategy is a viable alternative to airline consolidation. Since we believe these claims are patently untrue perhaps you could explain to your shareholders why you are ignoring the following facts:

1.                  Airline consolidation is accelerating across Europe. Air France has in recent years acquired (among others) Cityjet, KLM, VLM, Martinair and is now in talks to consolidate with the merged Alitalia/AirOne combine in Italy. Likewise, Lufthansa has acquired or agreed to acquire substantial stakes in Swiss, Austrian, British Midland and SN Brussels. Lufthansa has also expressed its interest in consolidating with Alitalia/AirOne and is currently in talks with SAS. BA has a significant stake in Iberia and both airlines are in active merger discussions. Why then has Aer Lingus been bypassed and ignored by this pan-European airline consolidation?

2.                  Aer Lingus' own advisor (Goldman Sachs) doesn't believe it has an independent future. In its latest airline research paper (3 Dec. 2008) Goldman Sachs confirmed its belief that "it seems inevitable that all European carriers will belong to one of the big three groups (BA, Lufthansa and AF-KLM) either through direct ownership or deeper alliances". Is there any independent expert outside of Aer Lingus who has any faith that your independence strategy will be successful?

3.                  Aer Lingus' Chairman doesn't believe it has an independent future. In your interview with the Irish Times (12 Dec. 2008) you "vowed to find a friendly investor who will take a majority stake in the airline". You also went on to claim that from a "consumer point of view" and a "country point of view", Air France-KLM "would be a better option than Ryanair" but "I haven't got a call yet". Aer Lingus' shareholders are entitled to a progress update on your "vow" to find a friendly majority investor and an explanation as to how a friendly majority investor reconciles with a strategy of "independence"?

4.                  Aer Lingus' Chief Executive doesn't seem to believe it has an "independent future". In his "keynote address" (to the ISTT Annual Conference (30 Sept-2 Oct 2008) in Dublin) "On the Future of the Travel Industry" Dermot Mannion suggested that by 2015, there could be just 5 large European airlines left, namely Air France-KLM, BA/Iberia, Lufthansa, easyJet and Ryanair. Can you explain to Aer Lingus shareholders why your Chief Executive believes that Aer Lingus may not exist as an independent airline in just 6 years time?

Perhaps this is why Mr Mannion has recently negotiated an agreement with Aer Lingus, which will allow him to trigger the payment of a "failure fee" of up to €2.8 million to himself if there is a change in control of Aer Lingus and he chooses to resign. Why would Aer Lingus or Mr Mannion discuss, negotiate or agree such a large "failure fee" if either you or Mr Mannion really believe that Aer Lingus has an "independent future"?

Yours sincerely,

Michael O'Leary

Chief Executive