EU blocks Ryanair takeover of Aer Lingus

(BRUSSELS) - The European Union's top competition watchdog and Ryanair on Wednesday headed for a dogfight in an EU court as regulators blocked the low-cost carrier's takeover of Irish rival Aer Lingus.

Shortly after the regulators' action, Ryanair vowed to challenge what it described as "unprecedented and unlawful" decision by lodging an appeal with the EU's highest court.

The European Commission vetoed the takeover on the grounds that the merger of Ireland's two biggest airlines would have given the combined carrier a crushing grip on 35 routes.

Although Ryanair withdrew its bid in December after regulators launched an in-depth competition probe, chief executive Michael O'Leary said he would relaunch it if the deal passed regulatory scrutiny.

"Our decision to prohibit this merger was essential to safeguard Irish consumers, who depend heavily on air transport, and other EU consumers," EU Competition Commissioner Neelie Kroes said.

"Monopolies are bad for consumers because they reduce choice, lower quality and give rise to higher prices," she added. "Low-cost carriers like Ryanair are no exception to this rule."

In anticipation of the Commission's move, O'Leary launched a pre-emptive strike on Tuesday by promising to make an appeal at the European Court of Justice against the decision, which he described as "nakedly political."

Confirming the appeal on Wednesday, Ryanair's combative leader said: "We look forward to the European courts overturning this unprecedented and unlawful prohibition."

Ryanair, which already owns 25-percent of Aer Lingus, launched an unsuccessful takeover bid last October that valued its smaller rival at 1.481 billion euros (1.992 billion dollars), only days after the former Irish flagship was partly floated on the London and Dublin stock exchanges.

The bid has faced stiff opposition from other major Aer Lingus shareholders, including the Irish government with a 25.4 percent stake and employees, pilots and their pension fund with nearly another 20 percent.

After an "extensive in-depth investigation," EU regulators concluded that the deal would have handed the merged company a market share of over 60 percent and around 80 percent on key intra-European routes out of Dublin.

In addition to the merged airline's crushing market share, newcomers would have faced an uphill battle because "Ryanair has a reputation of aggressive retaliation against any entry attempt by competitors," the Commission said.

The veto is only the second since Kroes became Europe's top antitrust regulator in November 2004 after she blocked the merger of Portuguese energy companies EDP and GDP shortly after coming to office.

Since 1990, the Commission has turned down only 20 out of the 3,000 cases that it has examined for competition threats, with the European Court of Justice overturning eight, or 40 percent, of the vetoes.

The showdown is not the straight-talking, ebullient Irishman's first run-in with European regulators.

They ordered Ryanair in 2004 to repay several million euros of state money received to set up operations at Belgium's Charleroi airport and the carrier has also filed competition complaints with them over state-aid to Air France.

Despite offering pared-down, low cost services, Ryanair is one of the biggest airlines in the world, flying 400 routes in Europe and carrying more than 40 million passengers in 2006.

Although Ryanair dwarfs Aer Lingus, which switched to a low-cost carrier model in recent years, the Irish duo are the two main airlines serving Ireland on routes to Europe.

Aer Lingus hailed the Commission ruling as a victory for consumers.

"Consumer choice is at the core of every competitive market and the creation of one dominant player out of Ireland, despite the protestations of Ryanair, just cannot be in the interests of consumers," chairman John Sharman said.

European Commission prohibition of Ryanair's proposed acquisition of Aer Lingus - frequently asked questions