Ryanair Slams Order To Sell Aer Lingus Stake

The shares of Ryanair (LSE: RYA) (NASDAQ: RYAAY.US) slipped €0.07 to €6.45 during early trade this morning after the airline was ordered to reduce its near-30% stake in Aer Lingus (LSE: AERL) to 5%.

The demand was issued by the UK Competition Commission, which today confirmed through a final report that Ryanair’s shareholding “had led or may be expected to lead to a substantial lessening of competition between the airlines on routes between Great Britain and Ireland.

The Competition Commission claimed the commercial policy and strategy of Aer Lingus could be affected by Ryanair’s shareholding because “it was likely to impede or prevent Aer Lingus from being acquired by, or combining with, another airline“.

The Commission also claimed Ryanaor’s shareholding could prevent Aer Lingus from raising new capital and limit the group’s ability to manage its portfolio of Heathrow slots.

Simon Polito, the deputy chairman of the Commission, said:

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.

We were particularly concerned about Ryanair’s ability, either directly or indirectly, to impede Aer Lingus from combining with another airline to build scale and achieve synergies to remain competitive.

However, Michael O’Leary, the chief executive of Ryanair, slammed the Commission’s conclusion and described the investigation as a “politically biased charade“.

He claimed today’s report had infringed the Commission’s “duty of sincere cooperation with the EU” by ignoring and contradicting recent findings from the European Commission.

Mr O’Leary also noted today’s report had admitted “the competitive relationship between Ryanair and Aer Lingus has at least persisted, if not increased, since 2007“, and added:

This case, involving two Irish airlines where one (Aer Lingus) accounts for less than 1% of the UK’s total air traffic and concerns very few UK consumers, is yet another enormous waste of UK taxpayer resources from a body which took no action whatsoever when the two main UK airlines (BA and bmi) merged.

Ryanair will now appeal the Competition’s Commission’s decision.

Of course, whether the order to sell the Aer Lingus shareholding and the wider outlook for the budget airline industry both currently combine to make Ryanair a ‘buy’ is something only you can decide.

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> Maynard does not own any share mentioned in this article.