Ryanair, which already owns 30 percent of Aer Lingus, had an initial bid turned down by the European Commission in 2007 and dropped a second offer in 2009.

Analysts and investors view its latest 700 million euro bid as a long shot - as is clear from Aer Lingus's shares trading well below the bid price. But the prospect of gaining access to Aer Lingus's slots at premium airports is enough for Ryanair to fight hard for a deal.

The European Commission said on Wednesday it was launching an in-depth review of the bid after a preliminary investigation suggested competition concerns remained, or had even intensified, since it last looked at the matter.

"On a large number of European routes, mainly out of Ireland, the two airlines are each other's closest competitors and barriers to entry appear to be high. Many of these routes are currently only served by the two airlines," the European Union's executive body said in a statement.

"The takeover could therefore lead to the elimination of actual and potential competition on a large number of these routes," it said, adding the number of routes where both Ryanair and Aer Lingus operate had increased since 2007.

Ryanair said last week it would offer unspecified concessions to ease regulatory concerns.

A source familiar with the matter has told Reuters the company was talking to British Airways (ICAG.L) and Virgin Atlantic about possibly opening routes and divesting airport slots.

But to allay competition concerns, Ryanair is likely to have to go beyond the London hubs of British Airways and Virgin, and show there will be sustainable competition on routes across Europe.

Analysts said the in-depth investigation was no surprise, and would step up the pressure on Ryanair to offer concessions.

"Both sides would have expected the commission to express competition concerns, given that Ryanair has yet to reveal its remedies package," said Merrion Capital analyst Gerard Moore.

The Commission said it would decide by January 14 whether to clear or block the deal.

Ryanair said in a statement the delay would cause its bid to lapse and it would resubmit the bid if the merger was approved.

Aer Lingus said it expected the Commission to reject the bid as the number of routes on which the two airlines compete was higher than when the Commission rejected the earlier bid.

"The reasons for prohibition are therefore even stronger than before," it said.

Aer Lingus' shares have gained 14 euro cent to 1.08 since Ryanair announced its bid in June, but remain 22 cents short of the offer price, implying that many investors are yet to be convinced that the bid will be successful.

At 1235 GMT, Aer Lingus shares were up 0.2 percent at 1.079 euros, while Ryanair's were down 1.1 percent at 4.134 euros. (Editing by Helen Massy-Beresford and Mark Potter)

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