Olympic Airways has been ordered to pay back tens of millions of euros in Greek state aid after an investigation by the European Commission.

We are avoiding cheating European transport commissioner

And a formal inquiry has begun into whether another airline, Ryanair, received illegal state aid from the authorities in Belgium.

The Commission ruled that Olympic Airways, the Greek flag carrier, must pay back state aid worth 194m euros (�124.4m; $195.6m).

The payouts to Olympic, which has been struggling financially, broke EU rules, said EU transport commissioner Loyola de Palacio.

Greek tax holidays

Ms de Palacio said the Commission was "guaranteeing to everyone on the European market that they can benefit from equal conditions...we are avoiding cheating".

Firstly it will have no impact on Ryanair, secondly we welcome it Michael O'Leary, Ryanair chief executive

The Greek government has already said it will appeal against the ruling, which it fears could derail its plans to privatise Olympic.

Aviation analysts viewed Olympic as one of the most financially vulnerable national carriers, even before the September 11 terrorist attacks sent the travel industry into crisis.

The Commission has objected to 40m euros of payouts to Olympic, topped up by payment holidays on airport taxes and social security taxes.

Greece's efforts to sell a majority stake in Olympic foundered in July when the prospective buyers failed to meet a deadline to prove they were solvent.

Ryanair shrugs off inquiry

"Proceedings have been started simply because of certain doubts (that) emerged after certain complaints were submitted," said Ms de Palacio of the Ryanair inquiry.

Michael O'Leary: inquiry will have 'no impact'

The Commission began an investigation into Ryanair last December. This latest decision means there will now be a formal inquiry.

Ryanair said it had nothing to hide and would welcome the inquiry, which would not harm its business.

"Firstly it will have no impact on Ryanair, secondly we welcome it," chief executive Michael O'Leary said in an interview with Irish broadcaster RTE.

The investigation into Ryanair centres on its decision to set up a European hub at Charleroi in southern Belgium in 2001.

'No preferential deal'

Mr O'Leary has denied reports that Ryanair received discounts that amounted to subsidies.

"The arrangements at Brussels Charleroi airport are competitive, non-discriminatory and available to all," said Mr O'Leary.

Shares in Ryanair Holdings, the airline's parent firm, slid 5% on the London Stock Exchange within minutes of the Commission's decision.

The airline's business plan hinges on offering cheap flights within Europe, often to smaller airports.

The strategy has proved highly successful for Ryanair. Europe's second biggest budget airline reported a 71% jump in profits to 169m euros for the six months to 30 September 2002.