The Government has opened a second front in its opposition to Ryanair's €1.4 billion bid for Aer Lingus by warning that the proposed deal could jeopardise the international agreements that allow Irish carriers fly to the US.
As the proposed deal ran into scepticism from Ryanair's biggest US investor, Minister for Transport Martin Cullen said there was a "serious risk" that the merged entity planned by its chief executive Michael O'Leary would break the international rules that govern air travel between Ireland and the US.
The Government has already indicated it is planning a legal action against the deal on competition grounds.
Mr Cullen said: "The Ryanair announcement does not deal with the question of the implications of its proposed takeover for the exercise of rights under Ireland-US bilateral air transport agreement."
The majority of Aer Lingus had to be owned and "controlled" by Irish nationals under the agreement. However, Ryanair said last night it was clear the Minister had not read the offer document.
A day after Mr O'Leary launched his dawn raid on Aer Lingus, it emerged that professional advisers working on its flotation last Monday has considered the risk of a "Ryanair bid scenario" but ruled out such a possibility as implausible.
While Mr O'Leary has insisted he was not mischief-making, sources close to the Government maintained that its approach was designed to undermine the competitive threat to Ryanair from Aer Lingus by distracting its management.
As Aer Lingus shares traded near to €3 for the first time, Ryanair faced questions about the wisdom of its own strategy. The airline's largest investor - New York-based fund manager Gilder, Gagnon, Howe & Co - was reported to have grilled executives in the airline as to why they were seeking to enter the long-haul market less than a week after the company told investors it had no plans for such a move.
During an investors conference call, the Gilder representative also questioned the timing of the bid. The attitude of US investors has raised the issue of whether Ryanair told investors about its move beforehand.
Mike Powell, an analyst at Dresdner Kleinwort Wasserstein, said US investors appeared to be taken aback by the takeover approach. "American investors were sounding quite confused. They probably don't know who Aer Lingus are."
Ryanair shareholders could force the company to abandon its pursuit of Aer Lingus, he claimed.
"There are a lot of investors who have been with Ryanair for a long time and who worship the company," Mr Powell added. "They are very confused by this. I would not be surprised if the deal collapses when Ryanair shareholders say 'why are you doing this?"