Ryanair faces having to reduce its shareholding in Aer Lingus after the UK competition authority ruled that its 29.8% stake could reduce competition on routes between Britain and Ireland.

The no frills carrier criticised the provisional finding by the Competition Commission as “unfounded” and threatened to appeal.

Ryanair chief executive Michael O’Leary described the CC provisional findings as “bizarre and manifestly wrong”.

The CC concluded that the shareholding gives Ryanair the ability to influence the commercial policy and strategy of it main rival on the routes.

Against a background of consolidation in the airline industry, 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 said.

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; it could also prevent its rival from disposing of its valuable slots at Heathrow.

The CC has today published a notice of possible remedies, seeking views on how much of its shareholding Ryanair should have to sell and whether such a disposal should be accompanied by other safeguards, should the CC’s provisional findings be confirmed after they are published by July 11.

CC deputy chairman and chairman of the Ryanair/Aer Lingus inquiry group Simon Polito said: ‘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 added: 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 recognise 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.

“Passengers on routes between Great Britain and Ireland will benefit from Aer Lingus continuing to compete vigorously with Ryanair and so Aer Lingus needs to be free to take any actions that will strengthen its position in the future.”

The Office of Fair Trading referred the case to the CC last year shortly after which Ryanair made its third bid for Aer Lingus, following previous unsuccessful attempts in 2006 and 2008. The most recent bid was rejected by the European Commission in February.

O’Leary said: “While Ryanair is one of the UK’s largest airlines, Aer Lingus has a tiny presence in the UK, serving just six routes to the Republic of Ireland, a traffic base that has declined over the past 3 years and now accounts for less than 1% of all UK air traffic.

“This case, involving two Irish airlines where one (Aer Lingus) accounts for less than 1% of the UK’s total air traffic, is yet another enormous waste of UK taxpayer resources on a case which has little if any impact on UK consumers.”