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American Airlines Group Inc | NASDAQ:AAL | NASDAQ | Common Stock |
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LONDON—British Airways parent International Consolidated Airlines Group S.A. expects the purchase of Aer Lingus PLC to boost earnings soon after the deal closes and that the Irish carrier would meet group-wide earnings targets.
Aer Lingus would be earnings accretive in the first full year after the takeover closes, IAG Chief Executive Willie Walsh said on a call on Wednesday.
"We see significant opportunity for the generation of revenue synergies," he said without setting a financial target. Aer Lingus's efficient operations limit the opportunity for cost savings, though Mr. Walsh said there could be benefits in areas such as aircraft leases and purchasing.
Aer Lingus would join the Oneworld alliance and a close business partnership that IAG has with carriers such as American Airlines Group Inc. and Finnair, Mr. Walsh said.
"The rationale for this acquisition is quite clear," Mr. Walsh said. It would strengthen IAG's position on the lucrative trans-Atlantic market and within the U.K., he said.
The Irish carrier would meet IAG targets of a 10% to 14% operating margin and a return on invested capital of at least 12% over the life of the business plan that stretches to 2020.
IAG, which first approached Aer Lingus about a takeover late last year only to be rebuffed, on Tuesday received support for a takeover under sweetened terms from the Irish government, which owns about 25.1% of Aer Lingus stock and is the carrier's second-largest shareholder.
"IAG has set out ambitious growth plans for the company and the government is confident that supporting IAG's offer for Aer Lingus is the best way of securing Aer Lingus' future in an increasingly competitive global airline market," Irish transport minister Paschal Donohoe said late on Tuesday.
Ryanair Holdings PLC, the largest shareholder in Aer Lingus with a 29.8% stake, hasn't yet said if it supported the deal, saying only it would assess any bid, not yet in hand, based on its merits.
IAG is hopeful it will win the backing of Ryanair, Mr. Walsh said, adding that "clearly there is still a long way to go."
The deal, if approved by Aer Lingus shareholders and antitrust authorities, would strengthen IAG's hold on the lucrative trans-Atlantic market that is a major driver of its profits. IAG also would acquire more takeoff and landing slots at London Heathrow airport, Europe's busiest hub.
Mr. Walsh played down antitrust concerns. IAG's proposal will be reviewed by European and U.S. antitrust authorities. "If you look at the city pair overlap, there isn't any significant overlap between Aer Lingus and IAG airlines," Mr. Walsh said.
The takeover would be a coup for Mr. Walsh, himself Irish and a previous boss of Aer Lingus, as he expands the reach of the airline group that also includes Spain's Iberia and budget airline Vueling SA.
There are pitfalls, though. IAG would have to "avoid the hiccups" seen at Vueling, which has failed to grow its profit since the acquisition, RBC Capital analyst Damian Brewer said. Aer Lingus also has seen labor strife that may be a latent risk for IAG, he said, while noting that IAG managed such conditions as part of its turnaround plan for Iberia.
IAG said it would make an offer for Aer Lingus at €2.55 ($2.89) a share in an all-cash deal comprising a share offer and a cash dividend of five European cents a share. The deal values Aer Lingus at €1.4 billion.
IAG's initial takeover offer in December was rebuffed, as was an improved one in January. The Irish carrier's board in February came out forcefully in support of the deal as Mr. Walsh made service assurances to Irish lawmakers that Aer Lingus would grow under IAG. The government had spent several weeks studying the terms and negotiating with IAG over service guarantees.
One of the attractions to IAG of buying Aer Lingus is tapping traffic from U.K. cities not well connected to Heathrow, Mr. Walsh said. Ireland's agreement with the U.S. to allow passengers to clear customs and immigration while at the Dublin and Shannon airports was also of interest, he said.
Write to Robert Wall at robert.wall@wsj.com
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