Aer Lingus has asked the European Commission to consider ordering Ryanair to reduce its stake in the company, a Commission spokesman said today.
Competition experts say the issue provides a test of whether the European Union regulator has the power to order a company to reduce its stake in a rival which is a takeover target, and the outcome may have far-reaching implications.
"I can confirm we have received a notice about failure to act and we will reply by October 17," Commission spokesman Jonathan Todd said.
He gave no further details.
The Commission, which has the exclusive power to regulate large mergers, blocked Ryanair's takeover bid for Aer Lingus in June, citing a threat to competition at Dublin airport, especially on routes to London.
But it said it believed it did not have the legal competence to order Ryanair to reduce its 25 per cent stake in the flag carrier.
Ryanair, Europe's biggest low-cost airline, has since bought a further 4 per cent to bring its total holding in its rival to over 29.4 per cent - close to the 30 percent threshold which would trigger an obligation to launch an offer for the entire share capital.
It has used its stake to try to force an extraordinary general meeting of shareholders to block plans by Aer Lingus to transfer valuable slots at London's Heathrow Airport from Shannon Airport to Belfast.
An Aer Lingus spokesman said: "It is true that Aer Lingus is in active discussions with the Commission, but it would not be appropriate to comment further at this stage."
Ryanair has appealed against the Commission's veto of the merger to the EU Court of First Instance.
A Brussels-based competition expert, speaking on condition of anonymity, said Aer Lingus' complaint would put the Commission in a stronger position, especially if the flag carrier challenged its failure to act in the European courts.
"If they [the Commission] lose the case, then they get more power. So it's a win-win situation for them," he said.