Ryanair Chief Executive Michael O'Leary has admitted his bid for Aer Lingus is 'dead'.
However he said he would be appealing the European Commission decision to prohibit his takeover attempt to the European Court of First Instance.
Mr O'Leary said such an appeal could take up to two years.
He revealed that he had received a letter from the European Commission saying it had no power to force Ryanair to sell its 25% stake in Aer Lingus. Ryanair will be retaining its shares in the airline.
Aer Lingus has welcomed the decision by the European Commission's competition watchdog to rule against Ryanair.
The Commission said the merger would have created a monopoly or a dominant position on 35 routes operated by both airlines.
It said that the combination would destroy competition at Dublin Airport where both Ryanair, Europe's biggest budget airline, and Aer Lingus are based.
It is only the second merger prohibition by the EU executive in four years.
Decision 'good for consumers'
Aer Lingus chief executive Dermot Mannion described the decision as good for consumers and said it would lead to continued strong competition between the two airlines at Dublin Airport.
John Sharman, Chairman of Aer Lingus, said: 'The creation of one dominant player out of Ireland, despite the protestations of Ryanair, just cannot be in the interests of consumers.'
Last October, Michael O'Leary stunned the world of aviation when he announced Ryanair wanted to take over Aer Lingus; the Government, which had privatised Aer Lingus two weeks earlier, was particularly put out.
But the EU Commission initially found a deal would reduce competition for consumers at Dublin Airport.
In order to appease the Commission, Mr O'Leary offered remedies if allowed to buy Aer Lingus; the airline's Heathrow landing slots would be transferred to British Airways and Air France and slots in Dublin would go to other competitors.
Mr O'Leary said also he would reduce Aer Lingus' short-haul fares and scrap fuel surcharges.
But these remedies did not satisfy the Commission.
