Aer Lingus considers alliance

Aer Lingus, the Irish airline that has been under hostile takeover pressure from Ryanair for more than two years, is considering whether to seek a protective alliance with another leading European carrier.

The group announced on Monday that Dermot Mannion, its chief executive, had resigned with immediate effect. Mr Mannion said his decision to step down would “allow a new CEO to bring fresh thinking and new ideas to the business”.

The board is consulting with Goldman Sachs, its financial adviser, on strategic options. These could include the opening of alliance talks with one or all of Air France-KLM, Lufthansa and British Airways.

The big three carriers are all involved in other merger deals in the wave of consolidation in European aviation.

Colm Barrington, chairman of Aer Lingus since October, said the board would consider both internal and external candidates to replace Mr Mannion.

Mr Barrington said he was taking over executive responsibility until a successor could be found.

Niall Ferguson, assistant chief executive, and Sean Coyle, chief financial officer, are leading internal candidates to succeed Mr Mannion, while there was also speculation on Monday among analysts about the prospects of Brian Dunne and Seamus Kearney, former executives in an earlier Aer Lingus management team led by Willie Walsh, now chief executive of BA.

The Aer Lingus share price has lost two-thirds of its value in the past year. On Monday it rose 3.5 cents to 70 cents.

Mr Mannion joined the then state-owned carrier four years ago and has led it through one of the most turbulent periods in its history.

It was finally floated by Dublin in September 2006 after government hesitation undermined several previous privatisation efforts.

Mr Mannion fought off two hostile takeover bids from Ryanair in two years with support from the Irish government, which still holds a 25.1 per cent stake, but the resistance has come at a heavy price to investors.

Ryanair, which has taken big losses on its investment in Aer Lingus, still holds a stake of 29.8 per cent.

It has kept up a sustained attack and has sought to undermine the credibility of the Aer Lingus management and its insistence on maintaining the group’s independence, as the share price has slumped.

Ryanair’s second all-cash hostile bid launched last December was pitched at €1.40 a share, half the €2.80 offered in its original bid in October 2006, which valued the company at €1.48bn ($1.97bn). Since the failure of the second bid the share price has virtually halved again.

The first Ryanair takeover offer was blocked by the European competition authorities. The Irish government also opposed the second bid for competition reasons and said this year it remained in favour of Ireland maintaining two leading carriers.

Mr Mannion’s position has been undermined by Aer Lingus’s deteriorating financial performance and its gloomy forecasts for 2009.

Investors also became concerned, when details emerged during the takeover battle earlier this year of a confidential and favourable pay-off deal for Mr Mannion and some other executives in the event of a hostile take­over succeeding and the executives deciding to leave. The deal was later rescinded.