Aircraft makers may play hardball over O’Leary’s growth plan

RYANAIR boss Michael O’Leary, who has unveiled ambitious expansion plans, is facing some tough negotiations with aircraft manufacturers because of previous difficulties, analysts have warned.

O’Leary, the outspoken boss at the budget carrier, outlined his vision for taking the Irish airline from 76 million passengers a year to 130 million, making it one of the largest airlines in the world.

His plan would require Ryanair to buy or lease up to 300 aircraft, adding to its existing fleet of about 200, between 2015 and 2021.

But Joe Gill, an analyst at Bloxham Stockbrokers in Dublin, told The Scotsman that finding the aircraft Ryanair needs could be a challenge.

Gill said: “Airbus doesn’t want to engage with Ryanair because it feels it was burned in the way previous contracts were awarded. Boeing fell out with Ryanair a couple of years ago. Although Boeing currently supplies all of Ryanair’s aircraft, I’d say the relationship was tough.

“Comac, the Chinese company is in the frame, but they won’t be producing planes until 2016 so it’s still early days.”

O’Leary – never far from the headlines – says his plans may include expansion in eastern Europe and Scandinavia.

He said that Ryanair could have about 50 aircraft servicing the Nordic market and 100 across the former communist bloc. O’Leary has said that he is in discussions with Boeing, Comac and the Russian plane maker Irkut.

Gill said the next couple of years would be a busy time for plane makers, with lots of orders already being placed, and so Ryanair may be able to “do a deal” to acquire more aircraft.

He highlighted aircraft leasing as a tool that O’Leary is likely to use, but also highlighted the amount of cash available to Ryanair to buy planes.

Gill said: “Ryanair wouldn’t need to go to shareholders for cash to fund any deals. There is about €4 billion [£3.5bn] of gross cash on its balance sheet at the moment and it has little or no net debt.

“That means the balance sheet has the ability to fund what I expect will be a mixture of buying aircraft and using leases.

“The company is taking about €500 million off its balance sheet each year at the moment.”

Ryanair paid a dividend of €500m in October, taking the total amount returned to shareholders over the past three years to €846m.

Analysts at RBS Equities expect Ryanair to post a year-on-year rise in second-quarter profits to a record €395m from €330m on 7 November on the back of turnover increasing to €1.5bn from €1.3bn.