International Airlines Group (IAG) shares have fallen slowly but continuously since last week’s outline of the proposed takeover terms for Aer Lingus to the Irish flag carrier's shareholders. IAG is offering EUR1.4 billion (US$1.5 billion) for Aer Lingus and has given assurances over preserving the Irish airline's brand, management, headquarters and connectivity with the UK. Shareholders see little short term value in the purchase, but there remains uncertainty over the intentions of Ryanair Holdings and their 29.8% holding. Another factor weighing on IAG is the potential for continued uncertainty even if Ryanair agrees to sell their shares to IAG in the form of a Virgin Atlantic protest over Heathrow slot gains on the back of the deal. IAG have stated that Aer Lingus would retain the slots for the time being but Virgin Atlantic may have a case for forcing IAG to give-up some Heathrow slots which would be seen by many as a real set-back for the airline group. Ryanair is not the only major hurdle in all this.
Given the fact that the best performing area of IAG is by far Vueling one wonders why IAG did not seek out another low cost deal in a core market as Aer Lingus was going nowhere while Ryanair held over 29%? However if we ponder on that for a moment we can argue that Aer Lingus does indeed tick all of the boxes - The move for Aer Lingus does see IAG consolidate in the UK as it has in Spain. By taking-on Aer Lingus IAG would see its slots in the key growth area of Manchester (for example) increase by some margin, the Aer Lingus deal does in fact in many ways do for IAG in the British Isles/Ireland what Vueling and Iberia did for it in Spain. But with all these hurdles to the Aer Lingus deal the main problem for IAG going forward, with Aer Lingus or not, remains the lack of infrastructure growth at London Heathrow, any new runway approval would send IAG shares through the roof.