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

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

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

The low-cost carrier 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 in cash or €1.40 a share —— half the value of Ryanair’s previous offer for Aer Lingus.

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, made in October 2006. The European Commission later put the nail in the coffin of Ryanair’s ambition, ruling that the proposed airline combination would have a monopoly on air traffic from Dublin to European destinations.

Ryanair already owns 29 per cent of Aer Lingus and Howard Miller, Ryanair’s chief financial officer, hinted that the low-cost carrier might get a different reception from Ireland’s new Taoiseach, Brian Cowen.

According to Mr Miller, the former Taoiseach, Bertie Ahern, was more sympathetic with 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 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 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 stand-alone, regional airline has been marginalised and bypassed as most other EU flag carriers consolidate,” said Mr O’Leary.

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 said. “No doubt we will have to give some slot concessions at Dublin. We have given a commitment to reduce fares and to eliminate fuel surcharges on long-haul routes.”The Irish Government 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 the Aer Lingus management and unions over threats to outsource 1,500 jobs at the airline and employ US cabin crews on transatlantic flights. Last month, unions agreed to call off a pre-Christmas strike when the management agreed to consider alternative proposals to save €50 million in staffing costs.

Aer Lingus is forecasting an operating loss for 2008 and 2009. Mr Miller would not be drawn on Ryanair’s plans for the Aer Lingus workforce.

Ryanair said that it would maintain Aer Lingus as a brand and a separate business to Ryanair while doubling the size of the Aer Lingus short-haul fleet over five years, creating 1,000 jobs. However, Mr Miller emphasised that the focus would be on operational, customer-focused staff. “The way to grow the business is to put more staff at the front end. There is overmanning at Aer Lingus. It is not particularly efficient.”

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

Times Recommends

• Gazprom brands Ukraine 'a barbarian' in gas row
• Services sector raises fears over UK jobless
• Retailers surge as profits survive sales plunge