UPDATE 1-EU Commission to clear Aegean-Olympic deal-sources

Wed Oct 2, 2013 8:17am EDT

* EU sees risk of Olympic closure if no deal-source

* Would be first approval for deal it previously rejected (Adds comments by Aegean, lawyer comments)

By Foo Yun Chee

BRUSSELS, Oct 2 (Reuters) - Greece's Aegean Airlines is set to secure European Union approval for its second bid for Olympic Air after convincing competition regulators its rival is likely to close down if the deal is blocked, two sources with knowledge of the issue said on Wednesday.

Aegean has said the proposed 72 million-euro ($96.38 million) acquisition is crucial for the viability of both airlines. Domestic demand in Greece has continued to drop as the country enters its sixth year of recession.

The European Commission rejected Aegean's first attempt to buy Olympic in 2011 from investment group Marfin because of the combined company's quasi-monopoly in the Greek air travel market.

"Olympic would likely close down without the merger," said one of the people who declined to be named because of the sensitivity of the matter.

The source said EU Competition Commissioner Joaquin Almunia is set to announce his approval of the deal on Oct. 9.

Almunia's spokesman Antoine Colombani said: "The Commission has not yet taken a decision in this case."

"Aegean has not received any notification or information with regards to the final outcome. We will wait for the final decision on October 16," the carrier's spokesperson said, referring to the Commission's scheduled deadline.

The regulator's approval would be the first time that it has cleared a deal it previously rejected. Ryanair made history when the Commission vetoed its third acquisition bid for Aer Lingus in February.

"While it's highly unusual for a competition authority to approve a transaction that it had earlier blocked, the Commission will no doubt point to the change of circumstances and material change of facts since its prohibition decision in 2011," said one antitrust lawyer familiar with the market.

Olympic, founded in 1957 by the late shipping magnate Aristotle Onassis, went into a steady decline after being operated for decades by the Greek government, saddling the state budget with losses. (Additional reporting by George Georgiopoulos in Athens; Editing by David Cowell)