The Irish Government last night insisted it was right to privatise Aer Lingus despite a shock £1 billion takeover bid by Ryanair chief Michael O'Leary.

In an audacious move Mr O'Leary bought 16 per cent of the Irish state airline and vowed to take control, less than a week after it floated on the London and Dublin stock exchanges. But Aer Lingus management unanimously rejected the offer and urged shareholders to follow suit. John Sharman, Aer Lingus chairman, accused Mr O'Leary of undervaluing the company. "The approach is unsolicited, wholly opportunistic and significantly undervalues the group's businesses," he said.

Aer Lingus said such a buyout would also cause significant regulatory problems.

Unions and opposition parties in Ireland fear a takeover will wipe out competition, drive up prices and lead to job cuts.

But Irish premier Bertie Ahern moved to allay concerns, insisting the Government would retain at least a 25.1 per cent in Aer Lingus.