OFT opens inquiry into Ryanair's stake in rival

The Office of Fair Trading has launched an investigation into whether Ryanair's purchase of shares in fellow Irish airline Aer Lingus more than four years ago could reduce competition for passengers in the UK.

Michael O'Leary, the chief executive of Ryanair, which holds a 29.82 stake in its low-cost rival, yesterday rejected the OFT's legal case and accused the watchdog of "wasting time or resources on what is clearly a non-existent issue".

The OFT will first seek to identify if it has jurisdiction to review the share purchase as a "relevant merger situation", including whether Ryanair has the ability to exercise "material influence" over the strategy of Aer Lingus as a result. Both airlines, although listed in Ireland, operate across the UK.

Ryanair, which now operates more than 1,100 routes across 26 countries, first started buying shares in Aer Lingus in September 2006 and a month later launched a takeover bid for the entire company. But the European Commission blocked the bid in June 2007. However, this July, the European General Court ruled that the EC did not have the ability to force Ryanair to divest its shares in Aer Lingus, which by September 2007 had grown to just under 30 per cent.

The case will centre on a four-month deadline to investigate a merger once it has ended or new material emerges. The watchdog argues that it does, as it was previously prevented from launching an inquiry until the European General Court's decision in July, under EC regulations. But Ryanair says the OFT had four months after the EC's ruling in June 2007 to investigate.

Aer Lingus said it "welcomed" the OFT's investigation.