UK orders Ryanair to cut Aer Lingus stake to 5% from 30%

Written by Reuters | Dublin | Updated: Aug 29 2013, 06:59am hrs
Britain's competition watchdog ordered Ryanair to sell most of its stake in Irish rival Aer Lingus, a potentially fatal blow to CEO Michael OLeary's dream of buying the former flag carrier. O'Leary immediately vowed to appeal against the bizarre and manifestly wrong order to cut Ryanair's stake to 5% from 30%, opening the prospect of a legal process that analysts say could last years.

Echoing a ruling by the European Commission in February to block Ryanair's third bid to take over Aer Lingus, Britain's competition commission said Ryanair's stake could lead to a substantial lessening of competition on some routes. In addition to cutting the stake, the UK body ordered Ryanair not to seek additional shares or board representation.

The British watchdog claims jurisdiction over the Irish airlines due to 11 routes between Ireland and Britain where Ryanair flights compete with those of Aer Lingus or partner Aer Arann.

Ryanair said the competition commission could not lawfully impose any remedies on Ryanair until the completion of Ryanair's appeal against the European Commission ruling.

O'Leary built up a 30% stake in Aer Lingus between 2007 and 2009 as a platform to take over the 75-year-old airline, a purchase that would have capped the rise of his upstart airline that began with one 15-seater plane in 1985.

Ryanair, whose low-cost model has come to dominate European aviation, carried 80 million passengers last year compared with under 10 million at Aer Lingus, and O'Leary says a takeover will allow him to slash his rival's cost base. But the competition commission found the current ownership structure could limit Aer Lingus's ability to manage its portfolio of Heathrow slots and could impede Aer Lingus from combining with another airline.

While the two airlines currently impose a strong competitive constraint on each other, the report found that Ryanair would have the incentive to use its influence to weaken Aer Lingus's effectiveness as a competitor.

O'Leary said the ruling violated European law due to contradictions with recent findings of the European Commission and that it failed to acknowledge Ryanair's recent offer to unconditionally sell its minority stake to any other airline that secures Aer Lingus shareholder approval for a takeover bid. He accused the body of double standards for not blocking the purchase by British Airways owner of British regional airline BMI, which was finished last year. Ryanair said its lawyers will lodge a complaint to Britain's competition appeal tribunal in the coming weeks.