Aer Lingus shares have tumbled on the market as investors become more convinced that the Government will reject the IAG bid for its 25.1 per cent stake. The shares were trading at €2.11 late on Monday, down 10 cent from Friday’s close and well below the €2.55 IAG bid price.

Indications have grown in recent days that the Government will not accept the bid for its shares, despite IAG offering assurances in relation to the Heathrow slots and air connectivity from Ireland.

A range of Government sources have said that acceptance is unlikely, with a number of backbench Government TDs opposing the sale, which is seen likely to cause particularly difficulty for the Labour party.

Bloomberg reported earlier that the Government was preparing to reject the offer, though quoted a source saying a final decision had not yet been made. IAG is engaged in a process with a committee of senior civil servants and advisers appointed by the government, which it is expected to meet again this week.

IAG has said that its bid is contingent on support from the Government and the other main shareholder, Ryanair.

If the Government decides to reject the approach , it would remain open to IAG to launch an unconditional bid which could see it take over control of the airline with the government remaining as a minority shareholders. However, it is not clear whether it would pursue this approach.