Ryanair could be forced to reduce its stake in Aer Lingus after a provisional ruling by the UK competition watchdog. It has found that Ryanair has influence over Aer Lingus which could lead to a reduction in competition in flights between Ireland and the UK.

The Competition Commission says it is considering forcing Ryanair to reduce its 29% stake in its rival carrier or sell it all.

The Commission has provisionally found that Ryanair's shareholding obstructs the ability of Aer Lingus to merge or combine with another airline to build scale "and achieve synergies to remain competitive".

It 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". It believes it could also prevent its rival from disposing of its valuable slots at Heathrow Airport.

The body has published a notice of possible solutions which seeks views on how much of its shareholding Ryanair should have to sell and whether such a move should be accompanied by other safeguards.

Simon Polito is Deputy Chairman of the UK Competition Commission and Chairman of the Ryanair/Aer Lingus inquiry group.

"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. Whilst not giving it control over the day-to-day running of its rival, Ryanair’s minority shareholding can influence the major strategic decisions that could be crucial to Aer Lingus’s future as a competitive airline on these and other routes" he said.

"We were particularly concerned about Ryanair’s influence over Aer Lingus’s ability to be acquired by, merge with, or acquire another airline. We thought it likely that such a combination would be necessary to increase Aer Lingus’s scale and achieve synergies to allow it to remain competitive in future".

"We recognize that there has been competition between Aer Lingus and Ryanair since 2006. However, without Ryanair’s minority shareholding, competition might have been more intense and may be restricted in the future" he added.

The full provisional findings will be published in the next few days, with the final report due to be published by July 11th.

Ryanair: Decision is bizarre & wrong

Aer Lingus Group has welcomed the announcement, saying it "looks forward to continuing to assist the UK Competition Commission in its investigation into the anti-competitive effects of Ryanair’s minority shareholding".

While Ryanair has rejected the finding calling it bizarre and manifestly wrong. In a statement it says it will appeal the ruling.

Ryanair’s Michael O'Leary said "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".

"A decision by the Competition Commission that Ryanair’s 29.8% stake in Aer Lingus may lead to a lessening of competition will clearly breach the EU Treaty duty of sincere cooperation between the EU and the UK. Ryanair therefore calls on the Competition Commission to abide by this overriding legal principle and end this bogus and baseless enquiry into a 6½ year old minority shareholding between two Irish airlines" he added.

Newstalk's Business Editor Ian Guider told Breakfast the ruling is quite unexpected.