By Jonathan Davies

Ireland's government has agreed to sell its 25% stake in airline Aer Lingus to British Airways owner IAG.

The Aer Lingus board is recommending IAG's €1.36bn (£961m) offer be accepted by the Irish government, and Ryanair which also holds a stake in the Irish airline.

Ryanair is yet to make a decision, but chief executive Michael O'Leary has said the company would listen to any offer.

The budget airline said in a statement: "The board of Ryanair has yet to receive any offer, and will consider any offer on its merits, if and when an offer is made."

Aer Lingus last year rejected two separate offers from IAG, saying they undervalued the airline.

Irish MPs have previously raised concerns over the deal, claiming that services between Dublin and Heathrow could be cut. However, as part of the deal, IAG has agreed to a legally binding commitment to keep Aer Lingus' current services between Heathrow and Dublin, Cork and Shannon for at least seven years.

Aer Lingus chairman Colm Barrington said: "This is a compelling transaction for Aer Lingus, its shareholders, its employees, its customers and for Ireland.

"The company will reap the commercial and strategic benefits of being part of the much larger and globally diverse IAG Group."

Although the Irish government has agreed to the deal, it still requires approval from the Irish Parliament.

IAG said that "Aer Lingus would maintain control of its brand and operation while gaining strength as part of a profitable and sustainable airline group in an industry that's consolidating".

"Ireland's vital air links to Europe and North America would be enhanced, creating new jobs, with cast-iron guarantees on ownership of Aer Lingus' Heathrow slots."