By Ben Martin. This time, he was back with a third attempt that he thought would be enough to convince his Irish counterparts to open talks. But first, the latest improved offer had to be approved at an IAG board meeting.
The breakthrough Walsh had been waiting for since he made his first offer on Dec 14 came hours later. By the evening, the Aer Lingus board had indicated to IAG that it was minded to back the bid, subject to conversations with its second-largest shareholder — the Irish government — over the weekend.
Irish government hires bankers to review Aer Lingus takeover. Aer Lingus: We are in striking distance of Ryanair. The Irish airline is an attractive target that Ryanair has been blocked from buying in the past. Not only is it profitable, but it has 23 take off and landing slots at Heathrow, which are highly sought after.
The takeover would see Walsh, who was born in Dublin, return to a company he knows well. His fearsome reputation is one reason opposition to the IAG deal from unions and opposition politicians in Ireland is growing. IAG has sought to allay those worries by pledging to run Aer Lingus as a separate business. On Friday, Qatar Airways revealed it had bought a 9. Qatar, one of the Gulf airlines challenging European carriers, is already a member of the Oneworld alliance of airlines and it said it was strengthening its commercial relationship with IAG.
Europe’s airline industry prepares for take-off
While non-EU ownership of European airlines is capped at 49pc Qatar has not ruled out lifting its stake, meaning it may one day exert increasing influence at IAG.
However, if the Irish state looks past Qatar and backs the Aer Lingus deal, the takeover would herald the next step towards a European airline industry with just a handful of strong players. That IAG is driving the consolidation is unsurprising. Formed from the merger of BA and Iberia, the group was intended as a vehicle for deals.
He has been true to his word, in an effort to catch up with his dealmaking rivals. IAG, however, was soon on the acquisition trail.2012 mim fender stratocaster
At the same time, IAG was digesting Iberia. Restructuring the unprofitable carrier proved an arduous process that involved strikes and deep cost cuts that have only recently borne fruit. Those difficulties left Walsh as the natural consolidator, according to analysts. Unlike the US, Europe remains relatively fragmented, providing plenty of opportunities for mergers and acquisitions. Unsatisfactory returns from the main airlines that do not cover the cost of capital have also driven talk of consolidation.
However, national interest has been an obstacle to dealmaking. Finnair, in which the Finnish state holds a 56pc stake, is one possibility. The biggest game changer for consolidation would be if blocks on global deals are lifted. Minority stakes could one day pave the way for such a deal. Free Annual Reports. Terms and Conditions. Style Book.
Weather Forecast.IAG 's interest in acquiring Norwegian Air Shuttle once again focuses attention on the process of consolidation in the European aviation sector. Although often headline-grabbing, this is a process that has not led to any significant change in market structure in recent years. Since then, consolidation has ambled along at a slow pace, led by mergers of smaller scale and market exits.
By comparison with North AmericaEurope 's aviation market remains very fragmented. Only mergers between Europe 's biggest groups could match the seat share of North America 's leading players. There has been very little consolidation in Europe in recent years. In spite of the disappearance of airlines such as TransaeroMonarchairberlin and Estonian Airmarket concentration changed little between summer and summer There are different ways of looking at concentration and there have been slightly greater increases in the seat share held by the top 10, top seven, top five and top three, but only by 2ppts or so in each case.
Europe : seat share of top 20, top 10, top seven, top five and top three airline groups, summer to summer The grouping that has experienced the biggest growth in its collective market share is the top seven, with an increase of 2. Since then, a more distinct top seven has emerged. Europe : top seven airline groups seat share, summer It is informative to compare Europe 's airline market structure with that of North Americawhich is the world's most concentrated aviation region.
However, although the seat shares of the seventh and eighth ranked North American groups closely match the equivalent groups in Europethe North American top seven collectively have an The top five in North America have Europe and North America : seat share of top 20, top 10, top seven, top five and top three airline groups, summer Above that, the European number five easyJet and number six Turkish Airlines actually have a higher share than their North American counterparts.
However, it is among the top four in each region that North American airline groups have a much higher seat share. No European group in the top seven has a seat share as high as any North American top four group. Moreover, each of the North American top four is bigger by seat numbers than its European counterpart. Europe and North America : top seven airline groups seat share, summer IAG has been the most active force in European airline consolidation since the wave of mega-mergers. Moreover, it has showed some imagination with its acquisitions, in terms of nationality and business model.
It would take the top three from In all instances, these figures would still be well short of the equivalent numbers in North America. There could also be concerns about such mega-deals on competition grounds. Although such big market shares exist in North America as a result of mergers in that market, this is no guarantee of acceptance by regulators in Europe. Europe 's fragmented market and lower profitability by comparison with North America suggest significant scope for further consolidation.
However, there are some strong, well capitalised groups at the top end of the market that could afford to stimulate this process with big acquisitions. The time may be ripening for thinking the unthinkable in European airline consolidation.
Summary Europe 's top seven seat share has gained 2. Concentration in Europe has changed little in recent years There has been very little consolidation in Europe in recent years. Europe 's top seven seat share has gained 2.Seven deadly sins grand cross
Europe 's aviation market is much less concentrated than North America 's It is informative to compare Europe 's airline market structure with that of North Americawhich is the world's most concentrated aviation region. European consolidation is slow. Want More Analysis Like This? CAPA Membership provides access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.
Caribbean Airlines - Acquired Air Jamaica. Cathay Pacific - Acquired full ownership over Dragonair, which continues to operate as a separate airline. Overtook Delta as the world's largest airline by passenger traffic inkept United name. Lewis Patenaude, under the name Northwest Airways - Began flying passengers - With its new routes to the far east, re-branded itself as Northwest Orient Airlines - Purchased Republic Airlines, and dropped the word Orient from its brand name - Merged with Delta.
Became world's largest airline by passenger traffic in under the Delta name. Surpassed Delta as the world's largest carrier. Terms related to list of airline mergers and acquisitions :. Source s : Wikipedia Creative Commons.Those familiar with the U. However, some European airlines have been able to merge across international borders prior to this latest wave of U.
And now reports are surfacing that another European airline merger could be in the works. In a move relatively rare in the airline industry, this merger crossed international borders; an agreement that would have been near impossible in the days of nationalistic airline sentiment.
However the path for this airline has not been entirely smooth. Earlier this year, Iberia reported a loss of nearly 1 billion euros nearly entirely wiping out the profit generated from British Airways. It should be noted that much of this loss was due to one-time items involving things like pension and restructuring costs. From these two mergers we have seen a European climate fairly friendly to cross-border airline mergers and airlines willing to take advantage of the opportunity.
The next merger? With the European economy still in recession, airline profits are harder to come by for major carriers. And few carriers are finding it harder to generate consistent profits than Italian airline Alitalia. Even before the recession, Alitalia required billions in capital injections from the Italian government -- injections that were eventually stopped.
InAlitalia declared bankruptcy only to relaunch in and burn through nearly another billion euros between then and now. You may be asking why any company that likes money would touch Alitalia with a foot pole. For those further interested in Alitalia's past, it is worth noting that Air France-KLM also tried to take over Alitalia in but the deal fell through after Alitalia's unions opposed the deal. Quite likely, Air France is looking to get Alitalia on the cheap, especially when factoring in the airline's poor financial record.
Alitalia would give Air France-KLM a greater presence in Italy and allow the newly merged airline to integrate routes. However, the Italian government wants to make Rome an international hub; a goal that could conflict with Air France-KLM's integration strategy. The Franco-Dutch airline is likely to have a goal of adjusting Alitalia's operations so they can be profitable in contrast to the horrendous cash fire that Alitalia has set over the past several years. This matter is far from settled and airline investors should watch for more developments in this potential merger.
European mergers Like their U. While the Air France-KLM and Alitalia merger is making the biggest news in the European airline industry, there could still be plenty of future airline mergers.
Investors both in the U. Alexander MacLennan TulipSpeculator1. Oct 7, at PM. He is always ready for a good growth or turnaround story and tries to find them before the market does.
Stock Advisor launched in February of Join Stock Advisor. Related Articles. Prev 1 Next.There seems to be a growing consensus in the airline industry that the rules restricting the foreign ownership and control of airlines are archaic and should be significantly liberalised or abolished.
Removal of the restrictions would allow meaningful cross border mergers and acquisitions on a global basis and lead to significant benefits to the airline industry's economic performance. There has been change in this area and some significant examples of government relaxation, or waiving of the rules.
Nevertheless, the rules, which originate in the Chicago Convention ofhave proved to be notoriously durable over many decades. Currently, most of the change is coming from efforts exerted by airlines to find new ways to circumvent the rules on ownership and control. This simultaneously illustrates both the increasing irrelevance of the rules and their enduring stickiness. The first, which is easier to define and monitor, involves placing explicit numerical limits on foreign nationals' ownership of the voting equity share capital of airlines.
In essence, the traffic rights granted under these bilaterals require that airlines benefiting from these rights are substantially owned and effectively controlled by nationals of the state in question.
Ownership is relatively easy to establish, but effective control is more blurred. It is not always possible to express numerically the level of influence that an investor has in the management of an airline in which the former has invested.
Of course, factors such as entitlement to appoint directors are taken into account, but this is not always clear cut. Moreover, governments in a number of regions have lowered the restrictions. As a replacement for imposing strict limits on foreign ownership or board membership, there has been some progress towards requiring airlines only to have their principal place of business in the state that is granting traffic rights. However, attempts by the Qantas subsidiary Jetstar to establish a minority owned affiliate in Hong Kong, as it has done elsewhere, were rejected in when the regulator broadened the definition of principal place of business to include the likely influence of its foreign parent company in Australia.
There are also examples of the selective ignoring of nationality clauses in air services agreements, although this tends to be only if it is in the interests — or at least not actively against the interests — of the nation choosing to waive the restrictions. However, this approach is unreliable, is subject to abuse, and does not allow a long term planning horizon for airlines. There are certainly examples where the requirement for effective control to be in the hands of nationals from the same state as the designated airline has been overlooked or interpreted in a particularly liberal manner.
However, effective control is not so straightforward. Delta's effective control of the JV gives it effective control over Virgin Atlantic's biggest business segment and, in the eyes of many observers, it effectively controls Virgin Atlantic as a result.
Yet the European Commission approved Delta's stake in Virgin, and not one government has raised any objection to the control arrangements. Other examples include Etihad's minority equity stakes in a number of airlines, some of which have been examined by the European Commission. Etihad also contributed to, and approved, new business plans.
Moreover, particularly in the case of airberlin and Alitalia, the weak financial state of the target company meant that they were effectively rescued from collapse by cash from Etihad in airberlin's case — many timesgiving the Abu Dhabi airline a strong hold over the investment airline.
Again, the European Commission approved these stakes by Etihad in European airlines and there have been no objections by governments. Why might Europe uphold something its officials call "stupid"? Majority economic ownership is visibly held by the parent company at the top of the respective groups, but each has devised more complex structures to project a kind of legal fiction that purports to keep voting control with nationals of the respective subsidiary airlines. No doubt, these were constructed by highly experienced and remunerated aviation lawyers and were designed to comply with the rules.
However, in a sense they have become a kind of self fulfilling prophesy: they work because they work, and this is because nobody has challenged them. It enlisted the support of the Austrian and Swiss governments to secure all the relevant traffic rights from the governments at the other end of the airlines' route networks.
This required those third party nations to waive the nationality clauses in their bilaterals, something that quite a large number of governments agreed to do. This is because liberalisation produces benefits. They are keen to widen the available pool of investment capital and management talent for their country's airlines. Without these rules, greater consolidation through cross border mergers and acquisitions would be possible on a global basis, allowing for more efficient use and allocation of capital and capacity, and the elimination of duplicated costs.
The US airline industry, which is predominantly reliant on the domestic market, can be seen as a kind of control experiment that illustrates the benefits to airline profitability from consolidation. The fact is — ownership and control restrictions still exist. In the past a global leader in the liberalisation of aviation, the EU is now unlikely to make any unilateral move to increase or abolish the foreign ownership limit.On January 1Abram Pheil flew as a single passenger on the first scheduled commercial flight of its kind across Florida.
Airports, originally little more than grassy fields, have become bustling hubs for tourism and the playing field for airlines to battle for a share of the 3.Pso2 spardun as
Over the past decade a number of mergers have taken place in the US that has halved the number of large carriers from eight to four. Data from OAG outlines the clear difference in the European airline market, where 17 airlines battle for market share, compared to the US, where 10 firms make up the predicted airline traffic for Over 53 percent of the European market is shared between the top six airlines, whereas in the US 46 percent of the market is shared between the top two airlines. In Europe, consolidation has struggled to take hold.
While large carriers have formed mergers, flag carriers and budget airlines are fuelling cut-throat competition on short-haul journeys. Flag-carrier systems have created an abundance of airlines and have led to inefficient excess-capacity. These legacy airlines have large market positions from their government-affiliated status but they are being undercut by low-cost competitors.
Operators are left with over capacity and profitability problems and unable to compete with the consolidation that has happened in the US market. This has primarily been due to differences in language, culture, political risks and government approach to the industry.
Flag-carrier systems have created an abundance of airlines and have led to inefficient excess capacity. Where you have a problem with these airlines is because of restrictions in ownership and restrictions in services and the involvement of government. Do you want an airline that flies your flag or something that will be a profit?
High fliers Middle-east airline Etihad has taken up a 49 percent share in Air Serbia, this adds to its three percent share in Aer Lingus, These shares allowed Etihad to acquire several significant hubs across Europe and participate in the European airline industry. SAS, the Scandinavian airline, has also been suggested as a potential takeover candidate with Lufthansa being speculated to acquire the airline.
Finnair offers the shortest route from China to Helsinki and has set up a joint venture with Flybe for domestic services. The airline may consider a merge with IAG to aid with connections and retain operating independence. Qatar Airways has also recently announced purchasing a 9. Qatar is just one of the gulf airlines challenging European carriers and, although non-EU ownership of European airlines is capped at 49 percent, should the Irish government back the IAG deal, the takeover would signal a step towards a European airline industry with just a handful of strong players.Bmw door handle
Wizz Air has revived plans for an initial share sale. The budget airline that operates within Eastern Europe could attract interest from Ryanair or EasyJet if it does issue stock. The success of low-cost airlines has boomed following EU deregulation and has forced the big airline groups to keep pace with the growing budget market. Turbulent times Despite incredible growth in commercial flights sinceairlines are failing to cover the cost of capital and companies are looking towards consolidation to increase their presence in key markets and pave their way in emerging ones.
There is very little competition in the industries that supply airlines. Airbus and Boeing provide the vast majority of planes and terrorist attacks, global illness and rises in oil prices all make the industry more vulnerable. This is not a healthy economic environment from a consumer point of view; it brings us only one or two mergers away from having a dominant national carrier.
Consolidation in the European airline industry is on the rise but it is unlikely the notion will become an overnight solution. It will not sit well with regulators, who do not want to allow a monopoly, or the consumer, who will not want to suffer loss of choice and increased prices as a result.
Both have to think about whether the need for consolidation outweighs the negatives, in an industry that is unable to sustain itself. From a consumer point of view it probably is better to have a consolidated market.
Is European airline consolidation ready for takeoff? Aviation Markets. Previous article Talking trash: can a zero-waste world exist? Next article Transparency is key for portfolio manager Dif Broker.Lately, the combination of rising demand and falling fuel costs has lifted profits. All kinds of airlines—from legacy FSCs to low-cost carriers large and small—need to come to grips with issues of scale, costs, and operating flexibility in an environment that demands ever more efficiency and agility.
To address these issues in a crowded European market, airlines must aggressively pursue strategic alternatives, including collaboration such as alliances and code-sharing arrangements and consolidation through mergers and acquisitions. FSCs remain structurally disadvantaged by their high legacy costs and their lack of flexibility in adjusting supply to shifting levels of demand. Whatever other steps they take, FSCs face an increasing need to restructure their costs and operations. While all airlines are currently benefiting from low fuel costs and robust traffic growth, the long-haul segment is coming under significant threat from several directions.
For one thing, the industry plans one of the largest capacity expansions in its history.
List of airline mergers and acquisitions
In addition, Middle Eastern and Asian full-service airlines, which have significant advantages in cost and quality of service, are becoming more active in Europe. Finally, more LCCs, which have historically focused on short-haul routes, are venturing into long haul.
His airline already serves four US cities. The fragmented nature of the European airline industry, compared with that in the US, presents an opportunity for airlines to collaborate and consolidate, allowing them to build scale, reduce costs, and, in particular, expand networks to capture additional business as competition intensifies.
There are, of course, political, regulatory, and other barriers to contend with, especially in the case of full-scale consolidation through mergers or acquisitions. Deals involving national carriers are often subject to restrictions, limiting in some cases the full synergy realization that could justify a potential deal. With certain concessions, however, airlines can appeal to national interest—by vowing to preserve brand identities, for example.
In any case, acquisitions should be carefully assessed and synergies analyzed along different realization scenarios, thereby enabling a measured decision. The European market consists of six types of airlines, each with its own strategic strengths and needs.
See Exhibit 1. See Exhibit 2. Within each strategic move are various collaboration and consolidation options that range on a continuum of complexity from pursuing go-it-alone organic growth at one end to a full merger at the other. See Exhibit 3.
Each company needs to decide how—and where—it wants to play. With 38 European airlines flying today, there are plenty of scenarios that could play out, but in reality few airlines have a wide menu of choices. Early movers will have more options. Because of their size, financial stability, and liquidity, global FSCs and large LCCs are the most likely acquirers and will lead any trend toward consolidation.
But FSCs and LCCs have different needs, and within each industry segment, individual airlines have their own priorities and strategies. We see a total of eight potential strategic moves, but each move presents limited actual options because of the paucity of attractive and available partners. FSCs have a big need to resolve structural competitive and profitability issues; increasing their scale and expanding their networks will help.Deliberazione g.r. del 29 giugno 1992, nƒ. 38 16335
Competition review is a possibility, and foreign ownership limits can be a barrier. Integration is always a challenge, and concessions to regulators can lead to parent companies operating multiple airlines and unable to take full advantage of synergies.
To maintain a low cost structure, for example, any acquirer will need to fully integrate an acquisition. To expand into the long-haul segment, some LCCs are considering such disruptive moves as establishing long-haul feeder deals with FSCs. There are significant barriers to such arrangements, however, because of the very different business models and interests of FSCs and LCCs. The big issue with any scenario involving another airline is that the number of potential combinations and deals is limited by the pool of attractive and available partners.
LCCs and midsize and small FSCs are the most appealing targets because of their limited scale of operations and few financial challenges. Competition for the strongest partners, especially those with attractive home markets, will therefore be intense.
European airlines are confronting the same grim reality their US counterparts faced decades ago
The most-sought-after targets will likely find themselves in good bargaining positions, from which they can drive up prices and extract more and better conditions. Larger airlines that wait too long to move may find that few good partners remain or that the price has risen past the point where a deal makes economic sense. All of which is likely to lead to more turbulence for airlines suddenly worried about being left out.
Shrewd carriers will make a sharp-eyed assessment of the industry and their own positions and move quickly to meet their needs through collaboration or consolidation while the pool of available partners gives them the opportunity for the best combinations.
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