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EU's antitrust body blocks Ryanair bid to take over rival Irish airline Aer Lingus

By: Juergen Baetz, The Associated Press

Posted: 02/27/2013 8:44 AM | Comments: 0 | Last Modified: 02/27/2013 5:11 PM

BRUSSELS - The European Union's antitrust authority on Wednesday blocked Ryanair's renewed bid to take over rival Irish carrier Aer Lingus, ruling that it would undermine competition and drive up ticket prices.

The merger of the two Dublin-based airlines would have harmed consumers by creating a monopoly or a dominant position on almost 50 routes where Aer Lingus and Ryanair currently compete, said the EU Commission, the bloc's executive arm.

"This would have reduced choice and, most likely, would have led to price increases for consumers travelling on these routes," it said, rejecting the remedies offered by Ryanair in return for a green light to its takeover bid.

Ryanair, Europe's biggest budget airline and already the biggest shareholder in Aer Lingus, vowed to appeal what it called a "political decision" designed to meet the interests of the Irish government. Its offer valued Aer Lingus at about €700 million ($900 million).

"At a time when airlines in Europe and further afield are merging to form bigger competition champions ... the EU Commission has yet again set back competition and choice in Europe while delaying much-needed consolidation," said Ryanair spokesman Robin Kiely.

The Irish government has opposed Ryanair ever since the airline surprised virtually everyone by launching its initial bid for Aer Lingus in 2006 just days after the government floated it on the British and Irish stock exchanges. Ireland retained a 25 per cent stake that it refused to sell to Ryanair.

So did Aer Lingus employee-controlled trusts that own more than 10 per cent of shares. The unionized Aer Lingus work force views Ryanair with particular hostility because it refuses to recognize unions, and has a reputation for combative treatment of customers and employees alike.

Irish Transport Minister Leo Varadkar said a Ryanair-run Aer Lingus "would have a significant detrimental effect on competition, connectivity and employment in the Irish market."

The EU said both airlines combined would have controlled 87 per cent of all short-haul flights out of Dublin, creating a dominant position on 18 routes and an "outright monopoly" on 28 others.

"The acquisition raised very significant competition concerns since it would have eliminated Ryanair's strongest competitor," said EU antitrust chief Joaquin Almunia. "In the end the most likely outcome of this transaction would have been quite simple: When flying to and from Ireland, passengers ... would have ended up paying higher prices."

When Ryanair relaunched its takeover bid last year, it expressed hopes that Ireland would agree to sell its stake this time, given the fact that the debt-burdened government is seeking to sell billions in state assets as part of its effort to exit its 2010 international bailout. And Ryanair's detailed pitch to EU authorities included a framework agreement to sell key Aer Lingus routes to two British competitors, British Airways and Flybe.

Ryanair, which has surged ahead of Aer Lingus in Ireland with a larger work force and lower average fares, also promised to trim Aer Lingus ticket prices and increase employment while keeping Aer Lingus as a distinctive higher-service brand with trans-Atlantic routes. Ryanair operates only in Europe, Morocco and the Canary Islands.

"We regret that this prohibition is manifestly motivated by narrow political interests rather than competition concerns and we believe that we have strong grounds for appealing and overturning this politically inspired prohibition," Kiely said.

The EU Commission has cleared other large airline mergers or takeovers, including the British Airways-Iberia and Lufthansa-Austrian Airlines deals. But Almunia told reporters that Ryanair's bid was different because the two airlines operate principally in the same market and are both based in Dublin. He compared the situation to a proposed merger between two Greece-based airlines, Olympic and Aegean, that the EU blocked in 2011.

Aer Lingus cheered the EU's decision.

"Aer Lingus' position from the outset has been that Ryanair's offer should never have been made," chief executive Christoph Mueller said in a statement.

The airline is suing Ryanair in an effort to force its rival to divest its 30 per cent stake. Britain's competition watchdog also is investigating whether Ryanair's investment in Aer Lingus unfairly influences its competitor's decisions. Ryanair holds no seats on the Aer Lingus board.

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AP writer Shawn Pogatchnik in Dublin contributed to this report.

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Juergen Baetz can be reached on Twitter at http://www.twitter.com/jbaetz

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