Ryanair drops Aer Lingus bid during European Commission competition investigation

Ryanair has been forced to shelve its €694m (£549m) takeover bid for rival Irish airline Aer Lingus after the European Commission opened an investigation.

Michael O’Leary, chief executive of Ryanair, faces the prospect of missing out on Aer Lingus for a third time after the EC blocked a bid in 2007 and the Irish flag carrier rejected a further offer in 2009.

Ryanair, which already owns almost 30pc of Aer Lingus, remained buoyant following the EC’s announcement.

The low-cost airline confirmed it will re-bid for Aer Lingus if the EC clears the potential takeover, despite Takeover Rules meaning the offer must lapse while the investigation is taking place.

A Ryanair 737. Photo by Paul.

The EC will explore competition concerns surrounding the deal – particularly at Dublin airport, where Ryanair and Aer Lingus are the main operators.

“On a large number of European routes, mainly out of Ireland, the two airlines are each other’s closest competitors and barriers to entry appear to be high,” the EC said in a statement.

“Many of these routes are currently only served by the two airlines. The takeover could therefore lead to the elimination of actual and potential competition on a large number of these routes.”

The EC said it will make a decision by January 14, 2013.

Aer Lingus welcomed the investigation. “Aer Lingus is a much stronger airline today than it was at the time of the previous Ryanair offers and is Ryanair’s only significant competitor on the vast majority of Irish air routes,” the company said in a stock market statement.

“The number of routes into and out of Ireland on which Aer Lingus and Ryanair compete has sharply increased since 2007. The reasons for prohibition are therefore even stronger than before.

“In addition to the European Commission’s in-depth investigation, the UK Competition Commission also continues to investigate the harmful effects of Ryanair’s minority shareholding in Aer Lingus, which is contrary to the interests of consumers and the majority of our shareholders.”

Aer Lingus rose 1 cent to €1.078. Ryanair fell 4.8 cents to €4.132.