Ryanair may be forced to sell at least part of its stake in Aer Lingus according to provisional findings published by the UK Competition Commission today.
The commission has concluded that the 29.8% stake in Aer Lingus gives Ryanair the ability to influence the commercial policy and strategy of the airline, its main competitor on routes between Ireland and the UK.
The commission said it has provisionally found that Ryanair's shareholding obstructs Aer Lingus's ability to merge or combine with another airline to build scale and achieve synergies to remain competitive.
The CC has also found that Ryanair's shareholding allows it to block special resolutions by Aer Lingus and to hinder its plans to issue shares and raise capital.
The stakeholding could also prevent Aer Lingus from disposing of its valuable slots at Heathrow airport.
"Our provisional view is that Ryanair's shareholding is likely to weaken its main competitor on routes between Great Britain and the Republic of Ireland," the commission states.
Shares in Aer Lingus closed 1.3% higher at €1.55 in Dublin this evening, while Ryanair shares were up almost 1% to €6.96.
Interested parties will be given an opportunity to respond to the provisional ruling before a final decision in July.
If the commission maintains its position, Ryanair said it will appeal. The airline's chief executive Michael O'Leary said the provisional decision was ''bizarre and manifestly wrong".
''The CC's finding that Ryanair's shareholding obstructs Aer Lingus' ability to attract other airlines was disproved by Etihad's purchase of a 3% stake and the evidence submitted by other large EU airlines, which confirmed that Ryanair's shareholding was not a barrier to other airlines acquiring a stake in Aer Lingus,'' Mr O'Leary said in a statement.
''UK taxpayer interests would be better served if the UK Competition Commission investigated (rather than ignored) BA's recent takeovers of BMI, Iberia and Vueling, instead of wasting time pursuing this Irish case, which is of no consequence to UK consumers,'' he added.
If Ryanair is forced to reduce its stake, it could end any hopes the group has of buying Aer Lingus, having tried three times to take over the carrier.
All three bids have been blocked by regulators on competition grounds, with the European Commission (EC) prohibiting such a deal in February - a decision Ryanair is appealing against.
Mr O'Leary said the Competition Commission contradicts findings by the EC that competition between the two airlines has continued and possibly increased since 2007.
The case was referred to the Competition Commission last June after Ryanair made its third unsuccessful bid for Aer Lingus, following two previous approaches in 2006 and 2008.
Ryanair, which flies over 1,600 routes, recently posted a 13% hike in annual profits to €569m and said it increased the number of passengers flown by 5% to 79.3 million in the year to March 31.
It expects traffic to grow by another two million passengers to 81.5 million in the current year, helped by this summer's addition of more than 200 routes and seven new bases, including at Eindhoven, Krakow and Marrakech.
Aer Lingus welcomed today's announcement by the UK Competition Commission regarding the provisional findings of its investigation into Ryanair's minority shareholding in Aer Lingus.
In a short statement, the company said that it looks forward to continuing to assist the UK Competition Commission in ''its investigation into the anti-competitive effects of Ryanair's minority shareholding''.