Aer Lingus welcomes European inquiry into Ryanair takeover

Aer Lingus cheered as European competition regulators stepped up their investigation into Ryanair's €700m (£556m) hostile takeover bid for its fellow Irish airline, on concerns that the deal may eliminate competition on several routes in Europe.

Ryanair is making its third attempt to acquire the Irish flag carrier. Yesterday's decision echoed the European Commission's decision to block Ryanair's first attempt in 2007, also on competition grounds.

The group abandoned its second attempt a year later after failing to receive sufficient shareholder support.

A spokesman for Aer Lingus said: "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."

The European Union said yesterday that a preliminary investigation into the transaction suggested the tie-up could pose competition concerns and has therefore referred the deal to an in-depth "phase II review".

"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. Many of these routes are currently only served by the two airlines," the European Commission said.

"The takeover could therefore lead to the elimination of actual and potential competition on a large number of these routes," it added.

The commission said it had until 14 January to decide whether to block the deal.

Ryanair said that its latest offer for Aer Lingus has automatically lapsed as a result of yesterday's decision, in accordance with takeover rules. However, the no-frills airline said it would re-bid for Aer Lingus if the takeover is cleared.

Shares in Ryanair fell €0.07 or, 1.6 per cent, to close at €4.13.