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Friday, August 25, 2006

Ryanair's Lawsuit Against the UK; A Prelude to an Earnings Miss?

There is an interesting story going on with the Irish-based discount airline leader Ryanair that has stormed the EU for cheap fares in recent years. Ryanair (RYAAY-NASDAQ/ADR) is reportedly following through with a threat by suing the British government's Department for Transport for GBP3 million (the equivalent of almost $6 million) because of losses it faced from flight cancellations and delays. This is after the police arrests from the UK terror plot to blow up planes in mid-air and the claim is to return security to normal.

There were reports last week that the discount flyer was threatening to sue the government if there were not a laxing of airport security and improvement in staffing. It also wants the restoration of hand baggage in its initial complaint, particularly since Ryanair started charging 2.5 Euros ($3.20-ish US) for each check-in luggage piece in January of this year; and that has temporarily been waived for bags that would have been carry-on otherwise.

The ADR's in the US fell almost 4% the day after the foiled UK terror plot. On August 10 shares closed at $55.64 and they closed down at $53.86 the following day. Shares closed lower yesterday at $51.52. Shares were up 1.1% in overseas trading earlier today. This stock is more than 10% higher than its 52-week lows and still up over 65% from its 2-year lows.

While the company claims the proceeds will be donated to charity, this sets up an interesting legal precedent. The UK has said there are no grounds for the suit according to overseas reports. It also has the earmarkings of an earnings warning, which has not been issued by the company in a corporate press release or disclosure of material information search. If the company is not planning to issue an earnings warning, it is at a minimum of prepping the street for this potentiality of an EPS miss. This at least gives the CEO some wiggle room if or when the numbers are soft, and now he can show something anecdotal to back up the "ex-terror" results.

Shouldn't they simultaneously be suing to seize terror assets to recoup losses from this as well?

Jon C. Ogg
August 25, 2006
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