Analysis - Election-nervous politicians shout down IAG's Aer Lingus bid

By Padraic Halpin and Conor Humphries

DUBLIN (Reuters) - The owner of British Airways ICAG.L is running out of time to secure Ireland's Aer Lingus AERL.I as questions over its commitment to keep jobs and key Heathrow routes stoke opposition from politicians facing a tough election next year.

Aer Lingus' board recommended the 1.36 billion euro (1.01 billion pounds) offer from International Consolidated Airlines Group ICAG.L (IAG) last month, subject to the agreement of the Irish state to sell its 25 percent holding.

Since then IAG has said it will maintain key landing and take-off rights at Heathrow, Europe's biggest travel hub, for its Irish routes for five years. But that has failed to quell attacks from trade unions, opposition parties and government MPs, who want stronger guarantees and assurances about employment.

"If IAG are going to do something they have to do it very quickly if the entrenched positions people have been forced to take are to be unwound," a senior government source told Reuters.

A year out from parliamentary elections the bid risks becoming politically toxic for the coalition government of Prime Minister Enda Kenny's Fine Gael and Labour.

Polls indicate that the two parties will lose around half of their combined seats because of a series of austerity budgets that have fuelled the rise of left-wing Sinn Fein and a large group of populist independent candidates.

Transport Minister Paschal Donohoe, said on Friday Dublin was not yet convinced: Kenny has demanded "cast iron permanent guarantees" on flights to Ireland.

At a recent meeting of the Labour party, which is affiliated to the IMPACT trade union that has warned of 1,200 job losses at the airline, all of the 20 or so members who spoke on the issue opposed the sale.(Full Story) One source said it was likely some would seek a veto of the sale at the party's annual conference later this month.

"We would still be of the view that the state should retain its share until we see something that would alter the situation," Sean Kenny, a Labour Party MP in a constituency where Aer Lingus is a major employer, told Reuters this week. (Full Story)

Shares in Aer Lingus have fallen to 2.21 euros from 2.45 on Jan 26. when IAG made the 2.55 euro a share approach.

"RUNNING SCARED"

Had IAG's Irish boss Willie Walsh made a bid for the airline back in September 2011, when Dublin first said it would consider selling its stake, the government might have bitten off his hand to get the money.

Just six months in office and grappling with the onerous terms of an EU/IMF bailout, it was under pressure to sell state assets, revive a crisis-hit economy and was watching yields on 10-year debt hover just below 9 percent.

But three and a half years on, the economy is growing faster than the rest of Europe and just last week Ireland sold 30-year debt at record low 2.1 percent.

However, say analysts and industry experts, the government may not get as good an offer again given pressure on the industry to consolidate. On top of that, while IAG may not be offering the exact guarantees that the state wants, Ireland's government could see its influence entirely wiped out if IAG buys the remainder of the airline or if another carrier takes majority ownership.

The management of Ryanair, which is trying to sell its 30 percent of Aer Lingus, has been generally supportive of the bid in public comments. "It's only a question of which parent or family it is going to join," Ryanair chief executive Michael O'Leary said of Aer Lingus' future last week.

Nonetheless, months from an election and bruised by mass street protests against the government's recent attempt to charge for tap water, short-term political calculations are likely to guide the government. (Full Story)

"The government is running scared because they made such a balls of Irish Water," said Liam Heron, an 80-year-old retired shopkeeper from Swords, a town near Dublin airport.

"With the election coming up the government are looking over their shoulders the whole time."

(Writing by Padraic Halpin; Editing by Sophie Walker)