Britain Orders Ryanair to Slash Stake in Aer Lingus

PARIS â€" British regulators on Wednesday ordered Ryanair to slash its 29 percent stake in Aer Lingus to 5 percent, arguing that the holding gives Ryanair too much influence over the strategy of the struggling Irish flag carrier and threatens competition on routes between Ireland and Britain.

In the final ruling, which reaffirms its initial finding published in May, Britain’s Competition Commission rejects a number of proposed remedies offered by Ryainair, including a vow last month by the airline’s chief executive, Michael O’Leary, to sell, without conditions, its entire Aer Lingus stake to any European company that made a successful bid for more than half of the airline.

“We recognize that Ryanair and Aer Lingus compete intensely for passengers traveling between Great Britain and Ireland, to the benefit of millions of passengers crossing the Irish Sea each year,” Simon Polito, the commission’s deputy chairman who led the inquiry, said in a statement. “However, we consider that there is a tension between Ryanair’s position as a competitor and its position as Aer Lingus’s largest shareholder, and that Ryanair has an incentive to weaken its rival’s effectiveness as a competitor.”

Aer Lingus welcomed the commission’s finding, which was widely expected. Ryanair, meanwhile, immediately rejected it as “bizarre and manifestly wrong” and said it would challenge the order before Britain’s Competition Appeal Tribunal, a process that could drag on for several months if not years.

Regulators will not be able to compel any divestment by Ryanair until after the company has exhausted its appeals.

Ryanair, Europe’s largest airline by number of passengers, has made three unsolicited offers in the past seven years for Aer Lingus, which is also 25 percent owned by the Irish government. Dublin has repeatedly expressed its interest in selling its shares, but has held off in the fear that they could be snapped up by Ryanair. Ryanair and Aer Lingus already control 70 percent of Irish air traffic, and the Irish government says a combination would leave Ireland too dependent on one operator for vital air links abroad.

The European Commission blocked Ryanair’s latest bid for Aer Lingus, worth nearly 700 million euros, or about $940 million, in February after a six-month review. European regulators found that concessions and remedies proposed by Ryanair, which included offers to sell dozens of routes between Ireland, Britain and Continental Europe, did not go far enough to allay antitrust concerns.

Ryanair has long coveted Aer Lingus because of its valuable takeoff and landing slots at airports like London Heathrow. It is that major presence at Heathrow that British regulators say gives them jurisdiction over the matter.

Alec Burnside, a lawyer in Brussels at Cadwalader, Wickersham & Taft, which represents Aer Lingus, said the British intervention in the case highlighted the limitations of European Union law, which gives Brussels the power to rule only on the impact of mergers on consumers. British regulators, meanwhile, are authorized to study the effect on competition of large minority shareholdings.

“The European Commission needs jurisdiction to scrutinize and protect businesses from anti-competitive minority shareholder situations like this one,” Mr. Burnside said.

In its statement, the Competition Commission acknowledged the measures that Ryanair had proposed to address its concerns. But “in a dynamic and uncertain sector such as the airline industry,” it said, “it is inherently difficult to design remedies that would cater for all eventualities.”

In its ruling, the commission said the eventual divestment of Ryanair’s stake should be handled through a trustee, which would leave Aer Lingus “free to take actions to maintain and strengthen its competitive position in the future for the benefit of passengers on routes between Great Britain and Ireland.”