Aer Lingus is a big step closer to being the independent airline it wants to be. But the fight with its unwanted shareholder, Ryanair, is likely to continue.

As expected by most observers and the airlines themselves, the U.K. Competition Commission (UKCC) last week ordered Ryanair to sell down its 29.8% stake in the Irish carrier to address long-standing concerns about the impact of the current structure on competition on routes between Ireland and the U.K. While Aer Lingus welcomes the UKCC final report, Ryanair CEO Michael O'Leary says his company will launch an appeal.

The UKCC confirmed the preliminary findings issued in May, ordering Ryanair to reduce its Aer Lingus shareholding to no more than 5%, no longer seek representation on the board and assure that it will not aim at increasing its stake later.

The final report lists numerous reasons why the UKCC believes the combination of the two airlines harms competition. “We were particularly concerned about Ryanair's ability, either directly or indirectly, to impede Aer Lingus from combining with another airline to build scale and achieve synergies to remain competitive,” the UKCC report states.

An important facet in the case is the UKCC's mention of consolidation. Many European airlines are for sale and most are in much worse shape than Aer Lingus, which has seen improved profitability in recent years after its near collapse in the aftermath of the Sept. 11, 2001, terrorist attacks in the U.S.

Aer Lingus stands out among mid-size European airlines in having attracted an investor, albeit one that it did not like and that would have changed the business model if it had been allowed to do so.

The sector's big players—Lufthansa, Air France-KLM and International Airlines Group (IAG)—are preoccupied with their own restructuring programs and show no appetite for more acquisitions. That and the apparent regulatory opposition to further takeovers evidenced in the UKCC and European Commission decisions against Ryanair/Aer Lingus leave only a very limited group of investors that would consider buying into European airlines—and that may be allowed to do so. Most of these are outside the European Union.

Aer Lingus has not actively promoted that issue publicly, though it is seen as another potential target for Etihad Airways, which holds less than 3% of the Irish carrier already. Former Aer Lingus CEO Willie Walsh, who now heads IAG, told the Irish Independent newspaper in June that “if somebody thought Etihad is a better shareholder than Ryanair, I'd love for them to explain why and how that would be the case. I see it as quite the opposite. Ryanair wants Ireland and, whatever you say about [Ryanair CEO] Michael O'Leary, he's proud to be an Irishman, lives here and has created one of the most valuable airlines in the world. How is that less attractive to Ireland than Abu Dhabi?”

Other foreign investment cases include Czech Airlines (Korean Air) and Air Serbia (Etihad)—Serbia is not a European Union member state. All of the rumored investor candidates to buy Adria Airways, LOT Polish Airlines, Croatia Airlines and TAP Portugal are non-European.

In the Ryanair/Aer Lingus case, the UKCC argues that “there is a tension between Ryanair's position as a competitor and its position as Aer Lingus's largest shareholder, and Ryanair has an incentive to weaken its rival's effectiveness as a competitor.” It concludes that the shareholding “has resulted or may be expected to result in a substantial lessening of competition between the airlines.”

Ryanair's appeal could take years to be decided, observers say, but that may not preclude regulators from enforcing the sale before a final decision.

O'Leary slammed the report as “bizarre and manifestly wrong, but also entirely expected. . . . This prejudicial approach to an Irish airline is very disturbing, coming from an English government body that regards itself as a model competition authority.” He accused the UKCC of a “misguided pursuit of their pre-determined conclusions.” O'Leary argues that even the European Commission has found no evidence of lessening competition between the two airlines since 2007 as part of its decision on the full takeover.

Aer Lingus, by contrast, points out that “it was unacceptable that our principal competitor was allowed to remain on our share register . . . and interfere with our business despite the European Commission blocking both Ryanair's first hostile takeover attempt six years ago and its most recent hostile takeover attempt earlier this year.”