Letter from... Ireland

Siobhan Creaton looks at Rynair's latest daring bid

The Irish Government and thousands of staff at Ireland's flag carrier, Aer Lingus, are breathing easier ever since the European Commission blocked a bid for the airline by its nemesis, Ryanair.

The no-frills airline's daring bid for its shamrock-tailed competitor last October was an audacious move, even by its own cheeky standards, coming just one week after the Irish Government had successfully floated the airline on the international stock markets.

After years of political angst and deliberation it was finally decided that Aer Lingus needed to bring new investors on board, to expand its fleet and to compete internationally.

There had been plenty of speculation that airlines such as British Airways or Emirates, the Aer Lingus' chief executive's previous employers, could build a stake in the profitable Irish airline that had a thriving short-haul and long-haul business. British Airways' boss, Willie Walsh, had overseen Aer Lingus' reversal of fortune before moving across the Irish Sea, and had himself led a consortium that attempted a previous management buy-out.

The expensive advisers hired by the Irish Government to handle the flotation had briefly considered the likelihood of Ryanair emerging as a new partner for the airline but dismissed it.

Michael O'Leary's tight business model that focused solely on offering short flights for the cheapest fares did not seem to fit with Aer Lingus, given its long-haul arm. And how often had they heard the loud-mouthed airline boss heap scorn on its Irish rival? O'Leary was fond of saying that Ryanair would not touch Aer Lingus with 'a bargepole'.

So it was a great shock to everyone when, at 8am on a cold October morning, Ryanair notified the stock markets that it had acquired 16% of Aer Lingus and was announcing a 1.48bn euros bid for the airline.

People across Ireland woke up to hear the Ryanair boss preaching on the radio about the benefits of having one national airline to compete against the major European alliances. 'It could only mean cheaper fares for Irish consumers,' he said.

It was shocking.

Bertie Ahern, the Irish Prime Minister, and the Aer Lingus board promptly rejected the bid and the Government signalled that it would be referring the matter to Europe. It had no desire to return to the days when Ireland had just one airline, and the prospect of the truculent O'Leary controlling Irish aviation was frightening.

Meanwhile, staff at Aer Lingus were distraught as rumours circulated about up to 1,000 job losses. The airline's pilots even started diverting funds from their pensions into buying a blocking stake to keep Ryanair out and to protect their positions.

In the days and weeks ahead, Ryanair's 'operation bargepole', as it was known, continued and it steadily raised its Aer Lingus stake to just over 25%.

The Government, the Aer Lingus staff, who controlled over 15% of the airline, and Irish telecoms' multi-millionaire, Denis O'Brien, who stepped in to buy a 3% stake, all stood together to oppose the Ryanair onslaught, keeping O'Leary and his acolytes at bay while the European Commission pondered the takeover.

The Commission has the power to block a takeover or impose a range of restrictions on the two companies where it believes it would result in increased prices or fewer seats for consumers. And in June, European competition commissioner, Neelie Kroes, invoked her power to prohibit mergers for only the second time since taking office in 2004. She concluded that the combination of the two Dublin-based airlines would have created a near-monopoly in the Irish market. Ryanair has promised to appeal the decision to the Court of First Instance.

For now, the Commission has forced Ryanair to cool its jets. The airline has nonetheless ended up with just over 25% of Aer Lingus, and O'Leary says it will stay on board Aer Lingus for the long-haul.

The question remains: will they be passengers or in the cockpit?

Siobhan Creaton is author of Ryanair, the story of the Irish low-cost carrier published by Aurum Press.