Aer Lingus shares fall as government opposition to sale grows

By Padraic Halpin

DUBLIN, Jan 29 (Reuters) - Opposition to a takeover of Aer Lingus by the owner of British Airways is building within Irish government parties, pushing shares in the Irish airline lower for the second successive day.

Aer Lingus (Other OTC: AELGF - news) 's board this week recommended an improved 1.36-billion-euro ($1.5 billion) offer from International Consolidated Airlines Group (IAG), subject to the agreement of its two largest shareholders -- budget airline Ryanair and the Irish state.

Opposition parties and Aer Lingus's trade unions want the government to retain its 25 percent stake, a call members of the Fine Gael/Labour coalition government said was echoed by some at parliamentary party meetings on Wednesday.

"It was fairly strongly the feeling at the meeting that Aer Lingus is important to the economic well-being of the country and that we shouldn't lightly dispose of some influence," Joe Costello, a Labour Party MP in a Dublin constituency where Aer Lingus is a major employer, told Reuters on Thursday.

Costello said Labour, traditionally with a strong union support base, would listen to how IAG could address concerns over jobs and regional routes, but that of the roughly half of the party members who spoke at the meeting, none were in favour.

He added the timing of the proposal, just over a year ahead of elections, was not ideal for the government parties.

The chairman of the parliament's transport committee, John O'Mahony of the senior government partner Fine Gael, said there were also concerns within the centre-right party.

Ireland (Other OTC: IRLD - news) 's enterprise minister Richard Bruton told national broadcaster RTE these were understandable but the government -- which met IAG for the first time on Wednesday -- could not draw any conclusions without seeing what was at stake.

IAG said on Tuesday it would operate Aer Lingus as a separate business with its own brand and recognised the importance of direct air services and connectivity for Ireland. It has given no further details.

Shares (Berlin: DI6.BE - news) in Aer Lingus were 2.3 percent lower at 2.31 euros at 1145 GMT, back to where they were a week ago before IAG made its fresh 2.55 euro a share bid on Monday. Traders blamed fears over government opposition for the second successive day of falls.

IAG shares were 0.2 percent lower at 559 pence.

"If the government were to elect not to sell its stake in Aer Lingus which resulted in IAG removing itself from the bid process, the share price reaction would be extremely negative," David Holohan of Merrion Stockbrokers wrote in a note. (Editing by Mark Potter)