Ryanair – Creative Accounting

It appears that the Irish Government is considering selling off its 25% stake in national air carrier Aer Lingus. This has come to the notice of Michael O’Leary and his pals at Ryanair, and for two reasons: O’Leary’s company owns a rather larger 30% of Aer Lingus, and in any case this is an ideal opportunity to make mischief and gain some of that free publicity in which Ryanair revels.

So it should come as no surprise that Ryanair’s press release is less than totally transparent about the numbers: at first glance, the fall in the Aer Lingus share price from €3 in early 2007 to only €0.60 now looks bad – an 80% fall in value. But this is to miss the backdrop of financial turmoil in Ireland.

Ireland’s ISEQ index, which is that country’s equivalent of the FTSE in London, ended 2006 at over 9,400 points, but by the end of 2007 had fallen to less than 7,000, and a year later had dropped under 2,350. At present it is hovering around the 2,500 mark, so had Aer Lingus followed the index, it would now be trading at little more than €0.80.

Moreover, Ryanair’s own share price has fared worse than the index: from a high in early 2007 of €12.50 it fell precipitately during that year and right now is trading a little above €3. So, while it is true to say that Aer Lingus has lost 80% of its share value, it is also true that Ryanair has lost 75%, and so is not so far behind, especially considering its reasonably solid growth.

Fortunately, investors in Ireland will be well aware of the backstory and so will take the spin from Michael O’Leary’s finest with an industrial sized pinch of salt. And when its own share price drop is seen, it’s no wonder that Ryanair have confirmed they will not be bidding for that stake in Aer Lingus.