Ryanair 2012 Annual Report Download - page 47

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The Company’s Acquisition of 29.8% of Aer Lingus and Subsequent Failure to Conclude a Complete
Acquisition of Aer Lingus Could Expose the Company to Risk. During the 2007 fiscal year, the Company
acquired 25.2% of Aer Lingus. The Company increased its interest to 29.3% during the 2008 fiscal year, and to
29.8% during the 2009 fiscal year at a total aggregate cost of €407.2 million. Following the acquisition of its
initial stake and upon the approval of the Company‘s shareholders, management proposed to effect a tender
offer to acquire the entire share capital of Aer Lingus. This 2006 offer was, however, prohibited by the European
Commission on competition grounds.
In October 2007, the European Commission reached a formal decision that it would not force Ryanair
to sell its shares in Aer Lingus. This decision has been affirmed on appeal. However, EU legislation may change
in the future to require such a forced disposition. If eventually forced to dispose of its stake in Aer Lingus,
Ryanair could suffer significant losses due to the negative impact on market prices of the forced sale of such a
significant portion of Aer Lingus‘ shares.
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 on the basis that the
OFT‘s investigation was time-barred. On June 15, 2012, the OFT referred the investigation of Ryanair‘s
minority stake in Aer Lingus to the U.K. Competition Commission (the ―Competition Commission‖). Ryanair
welcomed the OFT‘s decision as it believes that the Competition Commission should find that since Ryanair
exerts no influence over Aer Lingus through its minority stake, it should not be forced to sell down its minority
stake. However, 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 market prices
of the forced sale of such a significant portion of Aer Lingus‘ shares.
On June 19, 2012, Ryanair announced its third offer to acquire the entire share capital of Aer Lingus
(the ―June 19 offer‖) and immediately commenced pre-notification discussions with the European Commission
for the purpose of preparing a merger filing. Pending the outcome of the European Commission‘s review of
Ryanair‘s bid, on the basis of the duty of ―sincere cooperation‖ between the EU and the Member States, and
under the EU Merger Regulation, the Competition Commission‘s investigation of Ryanair‘s minority stake in
Aer Lingus cannot properly proceed. Nevertheless, Aer Lingus argued that the investigation should proceed and
that Ryanair‘s June 19 offer was in breach of certain provisions of the UK Enterprise Act 2002. On July 10,
2012, the Competition Commission ruled that Ryanair‘s bid was not in breach of the UK Enterprise Act, but
nevertheless decided that its investigation of the minority stake can proceed in parallel with the European
Commission‘s investigation of the June 19 offer. On July 13, 2012 Ryanair appealed the latter part of the
Competition Commission‘s ruling to the UK Competition Appeal Tribunal. The outcome of this appeal is
currently expected within a relatively short timeframe of approximately 3-4 weeks. Should the Competition
Appeal Tribunal uphold Ryanair‘s appeal, the Competition Commission‘s investigation will be suspended
pending the EU merger review process of the June 19 offer, including any subsequent appeals. Should Ryanair‘s
appeal be rejected, the Competition Commission‘s investigation will proceed in parallel with the EU merger
review process, however the Competition Commission could not in any event attempt to frustrate the European
Commission‘s jurisdiction and/or decisions. For more information, see ―Item 8. Financial Information—Other
Financial Information—Legal Proceedings—Matters Related to Investment in Aer Lingus.‖
The change in the available for sale financial asset from €114.0 million at March 31, 2011 to €149.7
million at March 31, 2012 is comprised of a gain of €35.7 million, recognised through other comprehensive
income, reflecting the increase in the share price for Aer Lingus from €0.72 per share at March 31, 2011 to
€0.94 per share at March 31, 2012. All impairment losses are required to be recognized in the income statement
and are not subsequently reversed, while gains are recognized through other comprehensive income.
Deteriorations in conditions in the airline industry affect the Company not only directly, but also indirectly,
because the value of its stake in Aer Lingus fluctuates with the share price. However, as the value of the
Company‘s stake in Aer Lingus has already been written down to just €79.7 million (the equivalent of €0.50 per
share as of June 30, 2009), the potential for future write-downs of that asset is currently limited to that amount.
Labor Relations Could Expose the Company to Risk. A variety of factors, including, but not limited to,
the Company‘s historical and current level of profitability and its seasonal grounding policy may make it
difficult for Ryanair to avoid increases to its base salary levels and employee productivity payments.
Consequently, there can be no assurance that Ryanair‘s existing employee compensation arrangements may not
be subject to change or modification at any time. The Company agreed to provide a company-wide pay increase
of up to 2% on basic pay for certain categories of employees, effective April 1, 2011. The Company paid
increases in line with agreements previously negotiated with employee representative committees that provided