Competition watchdog tells Ryanair to cut Aer Lingus stake

(Adds Ryanair reaction)

DUBLIN, June 11 (Reuters) - Britain's competition watchdog has told Ryanair in a final ruling to cut its 30 percent stake in Aer Lingus (LSE: AERL.L - news) , potentially making it easier for British Airways-owner IAG to take over the airline.

But Ryanair said it would fight the "nonsense" ruling in court, a process chief executive Michael O'Leary said could delay a forced divestment by at least 6-12 months.

IAG has made a 1.36 billion euro ($1.53 billion) bid for Aer Lingus, but the deal is conditional upon winning support from Ryanair.

Britain's Competition and Markets Authority (CMA) said on Thursday it was not good for competition when one airline could decide if a bid for its major competitor succeeded or failed.

"We need to ensure that, whatever happens in relation to this particular transaction, Ryanair's ability to hold sway over Aer Lingus is removed," the watchdog said in its final ruling on the issue.

But O'Leary said there was nothing to stop IAG buying the other 70 percent of Aer Lingus and pointed out that IAG owned 45 percent of low-cost carrier Vueling from 2011 to 2013.

"I don't think IAG would be in the least bit bothered by having us on the share register," O'Leary told Reuters in a telephone interview.

Ryanair lawyers are to appeal Thursday's decision to the Competition Appeal Tribunal, he said.

The CMA had said in April in a provisional ruling that Ryanair remained a major hurdle to any merger after Ryanair had asked it to reconsider an original 2013 ruling that it must cut its Aer Lingus stake to below 5 percent.

Ireland (Other OTC: IRLD - news) has already said it will sell its 25 percent stake in Aer Lingus to IAG.

Ryanair has said it would consider the bid once it had received the formal offer document.

The budget airline has made a series of legal challenges to the British competition watchdog order to reduce its Aer Lingus shareholding to 5 percent or less and is also planning to appeal to Britain's Supreme Court.

($1 = 0.8862 euros) (Reporting by Padraic Halpin. Editing by Jane Merriman and Mark Potter)