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Last Updated: Thursday, 5 October 2006, 16:39 GMT 17:39 UK
Aer Lingus rejects Ryanair offer
Ryanair and Aer Lingus planes
Ryanair says the bid is a "unique opportunity"
Irish airline Aer Lingus has rejected a 1.48bn euro (1bn) takeover offer from budget rival Ryanair.

The board of Aer Lingus said the bid "significantly undervalues the group's businesses and attractive long term growth potential".

Proceedings in the Irish parliament, the Dail, were suspended earlier in the day as politicians argued the issue.

A merged group would have a 78% share of the London-Dublin route, raising concerns over competition issues.

Analysts have said the competition issues could be overcome if some routes were shed, but added that Ryanair would probably have to raise its bid significantly.

Government stake

Ryanair chief Michael O'Leary said the move was a "unique opportunity" to form a "strong Irish airline", carrying more than 50 million passengers each year.

If the bid was successful, he said the plan was to continue to operate the two airlines separately and compete on the 17 routes which both use.

It's a compelling opportunity for the government, for the staff and more importantly for the Irish economy and tourism
Michael O'Leary, Ryanair chief executive

The Irish government, which owns 28.3% of Aer Lingus, said it would not sell its shares.

Mr O'Leary said Ryanair would be "more than happy" for the government to retain its stake.

Transport minister Martin Cullen was due to answer special questions on the takeover approach in the Dail on Thursday afternoon.

Morning proceedings had been halted after Taoiseach Bertie Ahern refused opposition requests for a debate on the subject.

He said the government was committed to competition in the industry, but that the deal would need regulatory clearance from either the Irish authorities or the European Commission.

Earlier this week, Aer Lingus shares were floated on the stock market in London and Dublin. Shares began trading at 2.20 euros each, valuing the firm at 1.13bn euros.

Global competitor

Ryanair has bought a 16% stake in Aer Lingus and is offering 2.80 euros per share for the remaining shares.

News of the takeover approach pushed Aer Lingus shares up 15%, though Ryanair shares fell 1%.

Low-cost airline focussing on passenger transport
Fleet of 35 aircraft
11 routes from Ireland to the UK
57 routes from Ireland to mainland Europe
Long-haul flights to US and UAE

The flotation followed a decision by the Irish government to sell much of its 85.1% share in the company. Workers now have a 9.85% stake.

If accepted, the Irish Government would get more than 500m euros from the sale and Aer Lingus employees would gain 200m euros, Ryanair said.

Shedding routes

The second largest union at Aer Lingus, Impact, is opposing the proposed takeover saying a stand-alone Aer Lingus was "in the best interests of the company, the country, passengers and staff".

"There are clearly significant competition issues involved in the proposed takeover, which would create a near-monopoly on passenger air travel in and out of Ireland with obvious adverse implications for passengers and society," a spokesman added.

Fleet of 107 aircraft
Orders for a further 281 Boeing 737-800s
372 routes
38.9 million passengers in the year to September 2006

Ryanair said that if the deal went through Aer Lingus would be able to cut the price of its short-haul fares and its fuel surcharge.

It also said it would be able to improve Aer Lingus' long-haul service and its cargo division.

The deal could get clearance by competition regulators, but some routes may have to be shed, said Exane BNP Paribas analyst Nick van den Brul.

"There would almost certainly be a competition investigation by the EU but it doesn't look insurmountable," he said.

Michael O'Leary speaks about his bid for Aer Lingus

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