MICHAEL O’LEARY, chief executive of Ryanair, said yesterday that he would continue fighting after losing the latest round of a battle in France over illegal subsidies.

A French appeal court upheld a decision that Ryanair had received unfair aid from Strasbourg’s chamber of commerce to launch services between that city and London.

The issue goes to the heart of Ryanair’s ability to offer cheap fares and comes ahead of a European Commission ruling on a similar case involving Belgium’s Charleroi airport.

Mr O’Leary said he would go to the European Court of Justice if necessary. “We have instructed our lawyers to appeal this decision, which prevents the return of low fares to Strasbourg,” he said.

Ryanair’s cut-price fares are dependent upon the Irish airline agreeing with airport authorities that they help with the cost of marketing, maintenance or other overheads. In return Ryanair agrees to fly in a set number of passengers each year, boosting the local economy. The original court case was sparked by a complaint from Britair, part of Air France, which said it was forced to cancel its London-Strasbourg link because of unfair aid to Ryanair.

The Strasbourg chamber of commerce promised in 2002 to give Ryanair €1.4 million (£900,000) to start two daily return flights from London.

Yesterday the appeal court in Nancy upheld a decision that the payments were an improper use of public funds. Ryanair has switched flights from Strasbourg to Baden-Baden, in Germany, pending the outcome of the appeal.

Shares in Ryanair, Europe’s largest airline by market value, fell almost 5 per cent yesterday, before recovering, on fears that the case signalled that the European Commission will adopt a similar stance. The loss of the Charleroi case would prompt a series of actions against deals Ryanair has struck with other airports, particularly in France.

In France most regional airports are under the management of local chambers of commerce, themselves state bodies. An EU spokesman said: “We’ve got to ensure that nobody is more equal than others, which means that in a competitive market nobody is going to receive illegal state aid. This is what we are checking with (Ryanair’s subsidies) at Charleroi.”

The spokesman gave no date for the decision on Charleroi, although EC officials had said that it could be announced next month.

Mr O’Leary had said that he expected Ryanair would escape any serious penalty over the Charleroi deal but has recently warned investors to expect a more adverse ruling.