Ryanair 2011 Annual Report Download - page 107

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On December 1, 2008, Ryanair made a second offer to acquire all of the ordinary shares of Aer Lingus
it did not own at a price of 11.40 per ordinary share. Ryanair offered to keep Aer Lingus as a separate company,
maintain the Aer Lingus brand, and retain its Heathrow slots and connectivity. Ryanair also proposed to double
Aer Lingus’ short-haul fleet from 33 to 66 aircraft and to create 1,000 associated new jobs over a five-year
period. If the offer had been accepted, the Irish government would have received over 1180 million in cash. The
employee share option trust and employees who owned 18% of Aer Lingus would have received over 1137
million in cash. The Company met Aer Lingus management, representatives of the employee share option trust
and other parties. The offer of 11.40 per share represented a premium of approximately 25% over the closing
price of 11.12 of Aer Lingus on November 28, 2008. Ryanair also advised the market that it would not proceed
to seek EU approval for the new bid unless the shareholders agreed to sell their stakes in Aer Lingus to Ryanair.
However, as the Company was unable to secure the shareholders’ support it decided, on January 28, 2009, to
withdraw its new offer for Aer Lingus.
The United Kingdom’s Office of Fair Trading (“OFT”) wrote to Ryanair in September 2010, advising
that it intends to investigate Ryanair’s minority stake in Aer Lingus. Ryanair objected to this investigation on
the basis that the OFT’s investigation is time-barred. Ryanair maintains that the OFT had and missed the
opportunity to investigate Ryanair’s minority stake within four months from the European Commission’s June
2007 decision to prohibit Ryanair’s takeover of Aer Lingus. The OFT agreed in October 2010 to suspend its
investigation pending the outcome of Ryanair’s appeal against the OFT’s decision that its investigation is not
time barred. Ryanair is currently awaiting the judgment of the Competition Appeal Tribunal. If the OFT
investigation proceeds, it may result in a referral to the Competition Commission. The Competition Commission
could order Ryanair to divest some or all of its shares in Aer Lingus, as a result of which Ryanair could suffer
significant losses due to the negative impact on attainable prices of the forced sale of such a significant portion
of Aer Lingus’ shares.
Legal Actions Against Monopoly Airports. Ryanair is involved in a number of legal and regulatory
actions against the Dublin and London (Stansted) airports in relation to what Ryanair considers to be ongoing
abuses of their dominant positions in the Dublin and London (Stansted) markets. Management believes that both
of these airports have been engaging in “regulatory gaming” in order to achieve inflated airport charges under
the regulatory processes in the U.K. and Ireland. By inflating its so-called “regulated asset base” (essentially the
value of its airport facilities), a regulated airport can achieve higher returns on its assets through inflated airport
charges. With respect to London (Stansted), the OFT, following complaints from Ryanair and other airlines, has
recognized that the regulatory process is flawed and provides perverse incentives to regulated airports to spend
excessively on infrastructure in order to inflate their airport charges. The OFT referred the case to the U.K.
Competition Commission, which released its preliminary findings in April 2008. It found that the common
ownership by BAA of the three main airports in London affects competition and that the “light touch” regulation
by the Civil Aviation Authority was having an adverse impact on competition. In March 2009, the Competition
Commission published its final report on the BAA and ordered the breakup of the BAA, (which will involve the
sale of London (Gatwick) and London (Stansted) and either Glasgow or Edinburgh Airport in Scotland). In
October 2009 London (Gatwick) was sold to Global Infrastructure Partners for £1.5 billion. In May 2009, BAA
appealed the Competition Commission’s decision on the bases of apparent bias and lack of proportionality.
Ryanair secured the right to intervene in this appeal in support of the Competition Commission. The case was
heard in October 2009 and in February 2010 the Competition Appeal Tribunal quashed the Competition
Commission’s ruling on the basis of the “apparent bias” claim. This decision was successfully appealed by both
the Competition Commission and Ryanair before the Court of Appeal. The appeal was heard in June 2010 and
the judgment was issued in October 2010, quashing the Competition Appeal Tribunal ruling and reinstating the
Competition Commission March 2009 decision. In February 2011, the Supreme Court refused to grant the BAA
permission to appeal the Court of Appeal ruling. The Competition Commission has subsequently reconsidered
the appropriateness of the remedies imposed on the BAA in March 2009 in light of the passage of time, and
confirmed in its preliminary report in April 2011 that the remedies are still appropriate and the sale of Stansted
and one of Glasgow or Edinburgh airports should proceed. In July 2011, the Competition Commission
confirmed its March 2011 provisional decision on “possible material changes of circumstances.” It found that no
material changes of circumstances (that would necessitate a change in the remedies package) have occurred
since the March 2009 decision requiring the BAA to sell Gatwick, Stansted and one of Glasgow or Edinburgh
airports, and that consequently the BAA should proceed to dispose of Stansted and one of the Scottish airports.
The Competition Commission also ordered that the sale of Stansted take priority and proceed before the sale of
one of the Scottish airports. The BAA announced that it would explore ways of appealing this decision.
However, it is unclear whether any such appeal would suspend the implementation of the Competition
Commission decision.