The State-supported airline Euroceltic ceased operations in the Irish regional market yesterday after the British authorities revoked its licence.

The development follows a non-fatal accident in Sligo on November 2nd last year, which led to the withdrawal of the company's own aircraft. Ticket-holders were advised to contact the airline in Luton for refunds.

The British Civil Aviation Authority moved to revoke the airline's aircraft operation certificate because it had used only leased planes since the Sligo incident in which a Fokker 27 skidded off the runway and tilted into the sea. There were no injuries.

About 35 people will lose their jobs. The airline was effectively breaking a Civil Aviation Authority rule requiring that an airline have at least one of its own planes at its disposal. The company had withdrawn its own F27 pending an a Department of Transport investigation and leased two Fokker 50 aircraft.

The company was in receipt of a State subsidy worth €7 million annually to provide an unprofitable service to Dublin from Sligo and Donegal. The Minister for Transport, Mr Brennan, said he was disappointed at the development and said the Government would ensure that the Sligo and Donegal services were continued.

Euroceltic's managing director, Mr Mike Johnson, last night said the airline's team "felt we were not breaking the rule". This was because Euroceltic had its own F27 at its disposal, even though the airline was not prepared to use it before the investigation into the November incident was complete. The airline has blamed the accident on weather and claimed its aircraft was safe.

In a letter yesterday to the Department of Transport, Mr Johnson wrote: "The request by us for them [the Civil Aviation Authority] to consider allowing us to continue as of present until the airline gets its own Irish aircraft operation certificate has been rejected."

When asked last night whether the Department of Transport should have been concerned about the Euroceltic operation when it ceased using its own aircraft, a spokeswoman said it had "every assurance" until yesterday that the airline was operating in compliance with all regulatory requirements, including safety.

Euroceltic is controlled by the Waterford businessman, Mr Noel Hanley, who acquired it for a nominal sum a year ago from the Luton-based businessman, Mr Diran Kazijian. In addition to the State contracts, it also operated a Dublin-Waterford route and two from Britain into Waterford.

Mr Johnson said the airline was likely to go into receivership but believed there would be money available to refund ticketholders.

Mr Brennan said the Government would "ensure" that a new service was provided to Donegal and Sligo. The development is yet another setback for the regional air market. Aer Arann reduced flights on its Dublin-Shannon service by half last year after miscalculating demand. In 2001, its five State contracts were cancelled after heavy losses. These were later renegotiated.