Aer Lingus rejected a second takeover bid from Ryanair, the state-controlled carrier’s low-cost Irish rival, last night.

Ryanair had hoped that the gathering economic gloom in Europe and a change of leadership in the Republic of Ireland would head off concerns about monopoly control of Irish air-space.

However, the Aer Lingus board said that Ryanair’s revised offer was not capable of completion and significantly undervalued the Irish flag carrier.

Ryanair promised fare cuts of 5 per cent on Aer Lingus flights as part of a charm offensive to support its new bid of €748 million (£617 million) in cash, or €1.40 a share, which is half the value of its previous offer.

The Irish Government and the airline’s employees, which together own 43 per cent of Aer Lingus, rejected the original bid of €2.80 per share when it was made in October 2006. The European Commission put the nail in the coffin of Ryanair’s ambition later, ruling that the proposed airline combination would have a monopoly on air traffic from Dublin to European destinations. Ryanair owns 29 per cent of Aer Lingus.

Howard Miller, Ryanair’s chief financial officer, hinted that the low-cost carrier might get a different reception from Brian Cowen, who became Taoiseach in May. According to Mr Miller, Bertie Ahern, the former Taoiseach, was more sympathetic to the Aer Lingus unions.

In addition, Mr Miller suggested that the potential windfall for the Irish Treasury of €188 million from the sale of its 28 per cent cent shareholding might help to sway the argument in Ryanair’s favour.

“With its current financial difficulties, the Government might welcome a couple of hundred million euros,” Mr Miller said.

Michael O’Leary, Ryanair’s chief executive, said that the world had changed dramatically since the initial bid and he pointed to high jet fuel prices, airline bankruptcies and capacity cutbacks. He said that Aer Lingus had failed its shareholders, its share price having fallen from €3 to less than €1 per share.

“Aer Lingus, as a small, standalone, regional airline has been marginalised and bypassed as most other EU flag carriers consolidate,” Mr O’Leary said.

Ryanair hopes to argue that recent bids and proposed mergers, such as Lufthansa’s takeover of Swiss and its proposed deals with Austrian and bmi, have changed the competition rules regarding market concentration.

“Why should Ireland be unique?” Mr Miller asked. “No doubt we will have to give some [take-off and landing] slot concessions at Dublin. We have given a commitment to reduce fares and to eliminate fuel surcharges on long-haul routes.”

Dublin said it would evaluate the Ryanair bid. Siptu, the trade union, described it as “mischief-making”.

Ryanair’s move coincides with a stand-off between Aer Lingus management and unions over threats to out-source 1,500 jobs and employ American cabin crews on transatlantic flights. Last month, unions agreed to call off a preChristmas strike when the management said that it would consider alternative proposals to save €50 million in staffing costs. Aer Lingus is forecasting an operating loss for 2008 and 2009.

Ryanair said yesterday that it would maintain Aer Lingus as a separate business to Ryanair while doubling the size of the short-haul fleet over five years, creating 1,000 jobs.

However, Mr Miller did emphasise customer service. “The way to grow the business is to put more staff at the front end. There is overmanning at Aer Lingus.”

Ryanair says the cost per passenger of running Aer Lingus flights is €130 per passenger, compared with €69 at easyJet and €51 at Ryanair.

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