Irish budget carrier Ryanair has launched an audacious takeover bid for flag-carrier Aer Lingus, and has acquired over 16% of the airline.

Its move follows the Irish Government’s privatisation of Aer Lingus. “Ryanair now announces its intention to make all-cash offer...for the issued share capital of Aer Lingus not already in the ownership of Ryanair,” says the budget airline, adding that it is offering €2.80 ($3.60) per share for the flag-carrier.

Ryanair chief executive Michael O’Leary says that the bid represents a “unique opportunity to form one strong airline group” for Ireland and for European consumers.

The budget carrier Ryanair’s extraordinary attempt to take over flag-carrier Aer Lingus centres on a cash offer of €2.80 per share for the airline, which would value Aer Lingus at €1.48 billion.

This offer represents a 27% premium on the €2.20 share price fixed last week for Aer Lingus’s initial public offering, and 12% over yesterday’s closing price for the stock.

Ryanair Holdings has acquired more than 16% of the issued share capital of Aer Lingus, by picking up nearly 85 million shares through a subsidiary called Coinside, and is intending to make an all-cash offer for the remaining shares. It says that its offer is conditional on Ryanair’s obtaining at least a majority stake in the flag-carrier.

“This offer represents a unique opportunity to form one strong airline group for Ireland and for European consumers,” said Michael O’Leary, speaking as he revealed the audacious takeover bid today.

“We will expand, enhance and upgrade the Aer Lingus operations. This offer, if successful, means both companies will continue to operate separately and compete vigorously in the small number of routes on which we both operate – currently around 17 of the approximately 500 routes operated by the two airlines.”

He says that the acquisition price being put forward is an “excellent” offer, arguing that the Irish government will generate more than €500 million from the sale of its Aer Lingus shares and adding that the airline’s employees will also collectively gain more than €220 million.

“The combined strength of Ryanair and Aer Lingus would establish an Irish airline group with over 50 million passengers annually, capable of competing on the European and world stage against other large European airline groups,” says O’Leary.

If the takeover is successful Ryanair – which will retain the Aer Lingus brand – intends to reduce the flag-carrier’s average short-haul fares, cut its fuel surcharges and trim costs. It says it will retain slots at London Heathrow airport and all profitable routes operated by the airline.

Ryanair will also give Aer Lingus access to financing benefits to which the budget carrier has access, and upgrade its long-haul fleet. Ryanair claims that Aer Lingus’ long-haul product has “not kept pace with the competition”.

“The board of Ryanair intends to deliver a publicly owned, Irish-managed and -headquartered airline group with the necessary ambition, expertise, financial strength and cost base to take on European and global competitors well into the future,” says Ryanair.

“As an island nation, Ireland is critically dependent upon strong and secure low-fare airline services in order to sustain and develop tourism and economic growth.

“Investing in Aer Lingus is attractive for Ryanair and its shareholders because, among other things, Aer Lingus’ earnings yield is superior to the returns currently available on Ryanair's cash deposits.

“Ryanair believes that there will be opportunities – by combining the purchasing power of Ryanair and Aer Lingus – to reduce operating costs, to increase efficiencies and to pass on these savings in the form of low fares to the travelling public.”

It claims that Aer Lingus’s short-haul fares are presently “far too high” and that low-fares strategies of Ryanair can be applied to the flag-carrier.

Dublin-based Ryanair has traditionally shunned takeover opportunities, preferring to expand organically, although it made an exception when it picked up budget carrier Buzz three years ago. But O’Leary points outs that the acquisition of Aer Lingus would echo the consolidation being undertaken in other parts of the European airline industry.

“Since we envisage that the two companies would be run separately, in the event that this offer is successful, nothing in this transaction will deflect Ryanair from continuing to focus on its own pan-European expansion or from continuing to deliver unit-cost reductions and continuing to offer lower fares to millions of Ryanair's European passengers,” adds the budget carrier.