Budget airline Ryanair has confirmed that it will appeal against the European Union‘s decision to block its proposed €1.48 billion (£1 billion) takeover bid for domestic Irish rival Aer Lingus.

In a statement, Ryanair chief executive Michael O’Leary, described the decision, confirmed earlier today, as “unlawful” and said he was confident that the European Court of First Instance, the appeal court for European Commission rulings, would overturn the “unprecedented” move.

Neelie Kroes, the European Competition Commissioner, said she was confident that the veto was legally sound and would stand up on appeal. In a statement, she said the deal was the first between the two main airlines in a single country operating from the same “home” airport with an unprecedented number of overlapping routes.

The EC report, which predicted a merger would “likely” increase prices, said a merged Ryanair/Aer Lingus would control 80 per cent of the Irish air travel market.

Catriona Hatton, a competition partner at lawyers Hogan & Hartson, said: "There does not seem to be much opportunity to argue that the EC got it wrong on the facts of the case itself - a takeover which creates a monopoly on 22 of the 35 Irish routes on which Ryanair and Aer Lingus currently compete is not one which a competition authority can approve, or at least not without significant concessions/remedies.”

“Therefore, any appeal is likely to turn on whether there was an adequate assessment of the remedies which Ryanair offered."

In an unsuccessful attempt to soothe competition fears, Ryanair unveiled a series of concessions as part of its bid, announced last October, including sharing runway slots at Dublin and Heathrow airports to allow other airlines to compete.

But the EU report also criticised Ryanair’s reputation for “aggressive retaliation” for further reducing the chances of opening up competition from rivals.

Ryanair and Aer Lingus are by far the biggest airlines offering short-haul European flights to and from Ireland, and the two companies were “the main competitive constraints on each other” on those routes.

Ryanair operates more than 400 routes across Europe, and carried more than 40 million passengers last year. Aer Lingus has increasingly moved into the “low-cost” carrier market, operating more than 80 routes and carrying more than 8.6 million passengers in 2006.

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