The Board of Aer Lingus has rejected a new Ryanair offer to buy the airline, and says it remains a strong business. Aer Lingus added that the €748m takeover offer from its rival significantly undervalues the airline.

The figure offered by Ryanair, which already has a near 30% stake in Aer Lingus, is just half of what it offered two years ago in an approach thwarted by European regulators.

In a statement released this evening, Aer Lingus advised its shareholders ‘to take no action in relation to the offer’.

In a surprise move announced to the Irish Stock Exchange this morning, Ryanair said it is offering €1.40 per Aer Lingus share. It already owns 29.82% of the former state carrier.

An earlier takeover bid by Ryanair for the airline was blocked by the European Union on competition grounds.

Ryanair says the proposal represents a premium of about 28% over the average closing price (€1.09) of an Aer Lingus share for the 30 days to November 28. It also represents an premium of about 25% over the closing price of €1.12 of an Aer Lingus share on Friday.

It says it wants to merge the two airlines into one strong Irish airline group under common ownership similar to recent mergers in Europe such as Air France/KLM and Lufthansa/Swiss .

It says that both airlines will operate as separate companies with separate brands.

Ryanair says that it the offer is successful it will double the size of the Aer Lingus short haul fleet from 33 to 66 planes over the next five years. It also promises 1,000 new jobs.

It says that the Aer Lingus ESOT and employee shareholders will receive over €137m in cash if the offer is successful. It also says that the Aer Lingus Chairman will be invited to join the board of Ryanair.

Ryanair says that over the past two years, the trading environment for all European airlines has deteriorated dramatically as a result of high oil prices and the global recession. It points out that over 30 airlines have failed this year.

Flood of airline bankruptcies and consolidations

'This proposed merger of Ryanair and Aer Lingus will form one Irish airline group with the financial strength to compete with Europe's three major airline groups - Air France, British Airways and Lufthansa,' said Ryanair's CEO Michael O'Leary.

'The world has changed dramatically over the past two years, as high oil prices and deep recession have caused a flood of airline bankruptcies, consolidations and capacity cutbacks. Aer Lingus, as a small, stand alone, regional airline has been marginalised and bypassed as most other EU flag carriers consolidate,' he added.

He said that the airline has requested early meetings with the Ministers for Finance and Transport, the board of Aer Lingus and the airline's ESOT trustees to discuss the latest move.

Today's approach comes two years after the Aer Lingus board rejected previous takeover interest from Ryanair, calling the offer 'ill-conceived, contradictory and anti-competitive'.

Aer Lingus floated on the Dublin stock exchange in 2006 and within days Ryanair began snapping up shares before going public with its takeover interest.

SIPTU has described the merger proposal as another attempt at 'mischief making'.

Next move up to Aer Lingus board - Dempsey

Transport Minister Noel Dempsey says any decision in relation to the Ryanair bid for the Government's shareholding in Aer Lingus will be taken in line with the State's aviation policy.

However, Minister Dempsey said the Government would wait until it had received an actual bid rather than today's announcement which he said was merely a statement of intent.

The Minister said the Government is free to sell or to keep its 25% shareholding in the company just like any other shareholder.

Speaking in Dublin this morning, he said it was up to the board of Aer Lingus in the first instance to look at any offer that might be made.

Shares in Aer Lingus jumped 14% to stand at €1.28 in Dublin this afternoon, while Ryanair shares were down 1.8% to €2.87.