COMMENT: Walsh & O’Leary – where next?

With the imminent conclusion of the IAG (for that read British Airways) takeover of Aer Lingus  (See ‘The Final Chapter’ in this issue) where do Michael O’Leary and Willie Walsh stand?  

For O’Leary it is in essence a defeat.  According to his own statement Ryanair made a “small profit” on the Aer Lingus shares, but what is a “small profit”?  Does this include all his legal fees?  Lawyers advice does not come cheap.  What would have been the return with the same outlay invested elsewhere?  And how much management time was lost?

O’Leary now has a dilemma.  If he wants to go ‘low-cost’ across the Atlantic he has to take Ryanair into uncharted waters, buy another carrier and build on it, or start from scratch.  Within the Plc he requires the approval of the board, who do not seem to be too enthusiastic.  After the Aer Lingus fracas they are unlikely to support the purchase of another airline.  This leaves Mr O’Leary looking for backers in an airline purchase or to start help fund another start-up.  Either way it is a very risky project. 

Just where does Michael go?  Ryanair continues to progress.  But the guy is restless.

Willie Walsh also has a dilemma.  Where is his future having been in charge of BA, and latterly IAG, for 10 years?  Is this long enough for him?  He must be ‘cock-a-hoop’ with grabbing back an airline he was forced to resign from, and the future looks good.  But he has still not paid a dividend in his tenure, although one is promised. 

The takeover of Iberia must be viewed as a mistake. 

True the IAG shares are strong but it would be interesting for a city analyst to number crunch on a standalone BA over the last decade and come up with profit figures v dividend v share value and look at the result.  Would shareholders have been better off without Iberia?  IAG itself is an expensive operation with over 100 highly paid staff duplicating much of BA and Iberia.  Iberia still has question marks over it. 

Now with a total monopoly of flights into Heathrow from within the British Isles and its future fleet sorted out BA looks very strong.  It can hardly be said to be supporting Heathrow’s third runway and just like the Nimbies, is looking after number one.  Maybe that is good business but is it right for the country whose flag it flies?  The British government has no ‘Golden Share’ and power of veto.  BA needs a policy to support its shareholders and support the country.  Not easy.

Will O’Leary and Walsh carry on?  That is really the question.  Only time will tell.

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