JOHN Menzies is facing a setback after its decision to focus on aviation services with the competition watchdog expressing concerns about the impact of its latest acquisition in the sector on Glasgow and Edinburgh airports.

The Competition and Markets Authority said the planned takeover of Airline Services by Edinburgh-based Menzies could lead to less choice and potentially higher costs for de-icing services at the Scottish airports.

The CMA said the takeover also raised competition concerns regarding services at Heathrow, Gatwick and Manchester airports.

It has given Menzies until August 14 to offer acceptable solutions to address the concerns or face an in-depth phase 2 investigation.

These can take up to six months and result in the CMA imposing tough measures to address competition concerns, which can include blocking or unwinding deals.

Menzies said it was disappointed by the CMA’s decision.

London-listed Menzies decided to sell off its newspaper distribution arm to focus on aviation services after facing calls from investors for a break up of the group.

Last month Menzies said it had achieved its strategic goal of creating a pure play aviation services group by entering into an agreement to sell Menzies Distribution to the Endless private equity business in a £74.5 million deal.

Directors said the deal would allow the firm to focus its management and capital resources entirely on expanding its position in the structurally growing aviation services market.

The acquisition of Airline Services announced in April represented an important step in the group’s drive for growth in the aviation market.

Menzies Aviation boss Forsyth Black said then the deal would provide a significant addition to the group’s UK business and was in line with its strategy to offer the deepest portfolio of products to airline customers.

Menzies did not disclose how much it would pay for Manchester-based Airline Services.

Airline Services generates around £35m annual revenues from the provision of services such as de-icing and aircraft cleaning to over 60 airlines at 12 UK airports. It runs ground handling operations at Gatwick.

The deal will take Menzies into four new UK airports: Liverpool, Newcastle, Birmingham and Exeter.

The CMA said following a phase one investigation it had identified competition concerns regarding de-icing services at Edinburgh, Glasgow and Heathrow airports, and ground handling services at Gatwick and Manchester.

The watchdog noted: “The merger of Menzies and Airline Services, which are close competitors at these airports, could lead to less choice for the airlines operating there, potentially leading to higher prices and lower quality service.”

A spokesperson for Menzies said: “We note the decision of the CMA to refer the acquisition of Airline Services Limited. Whilst we are disappointed by the decision, we will continue to co-operate with the CMA and its processes.”

The spokesperson said Menzies was committed to growing the aviation business and to raising standards within the industry.

Analysts at Shore Capital, joint house broker to Menzies, said the CMA’s move no doubt came “as a disappointment as well as a surprise” to directors of the group given considerations such as the small size of Airline Services and the fragmented nature of the sector in the UK.

They added: “Whatever the outcome we see no forecast implications.”

With shares in Menzies closing up 3p at 644p investors appeared relaxed about the CMA’s move. Menzies developed out of a bookshop opened in 1833.