Ryanair bid for Aer Lingus suffers further setback

Ryanair's attempt to buy its rival, Aer Lingus, received a further setback last night after the European Commission began an in-depth investigation into the takeover proposal.

Ryanair said it would lapse the offer pending the outcome. This forestalls tomorrow's deadline for Aer Lingus shareholders to vote on the £1bn bid. The likelihood of the bid succeeding now looks remote. Michael O'Leary, Ryanair's chief executive, has admitted that the bid is likely to fail.

The European Commission raised concerns that were not been addressed by Ryanair. The EC was due to report on its findings yesterday, but has extended its deadline for approving the deal until 11 May.

"The proposed acquisition would raise serious competition concerns in the passenger air transport sector, and in particular could reduce choice for consumers and could give rise to higher fares than would be likely if the two carriers remained separate," the regulator said in a statement.

The airlines compete on only 17 routes, mostly between Ireland and Britain.

Mr O'Leary launched the hostile bid for his arch rival in October, less than a week after Aer Lingus listed its shares for the first time. The Irish government holds a quarter of Aer Lingus's shares and has committed to maintaining that stake. The government has expressed concerns over Ryanair's plans for the national airline's workforce. Aer Lingus employs around 3,200 staff.

The staff have also moved to block the budget airline's plans. The Aer Lingus Employee Share Ownership Trusts has built a stake of nearly 13 per cent, while the airline's pilots hold a 2.3 per cent stake.

Mr O'Leary said last month that he would not raise his offer for Aer Lingus. That effectively signalled the end of the hostile bid, with almost 40 per cent of shareholders vowing to block the takeover attempt.

Ryanair has built a near-20 per cent stake in its domestic rival, and he intends to keep that stake. Under Irish takeover rules, the company cannot return with a bid. Mr O'Leary has committed to remaining an active and vocal shareholder in his rival.