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EasyJet May Buy BA's German Operation

The British budget airline easyJet has surprised the market by announcing...

The British budget airline easyJet has surprised the market by announcing it has acquired an option to buy British Airways's German domestic airline, with a view to transforming Deutsche BA into a no frills carrier.

?Germany is the biggest domestic air market in Europe,? EasyJet Chief Executive Ray Webster said in a statement. ?But it is poorly serviced by low-cost airlines, especially in comparison to the UK.?

The move comes just days after Europe's second largest low cost airline revealed it was in advanced and exclusive talks with rival British budget airline Go-Fly, with the market expecting a big rights issue to pay for any deal done.

The privately owned Go was also part of BA until the British group sold it off last year for 110 million pounds to management and institutional investors led by venture capital fund 3i.

BA said the Deutsche BA deal was potentially worth between 18.3 million pounds and 28 million pounds depending on when EasyJet exercised its option, which was valid until March 31st, 2003, with the right for EasyJet to extend it to July 3rd.
More immediately, under the option itself BA said that EasyJet will assign three of its managers with Deutsche BA and contribute three million pounds towards capital expenditure and pay British Airways 366,000 pounds a month until it exercises the option.

BA, which relies heavily on the transatlantic market for its profits, is cutting thirteen thousand five hundred jobs and restructuring its short haul operations in Europe in response to the sluggish economy and competition from no-frills airlines such as EasyJet.

?The move to sell DBA is a further step in British Airways' strategy to improve performance of its European short haul business,? BA said in a statement, adding it was consistent with its plan of selling non core assets.

Separately, EasyJet said it had posted a pre tax profit of one million pounds for the six months to the end of March, up from 10.3 million pounds for the same period a year ago, and struck on a thirty six percent rise in revenue to 194 million pounds.

EasyJet, which signalled last month that it expected to post a modest first half profit, has a seasonal business. It usually generates profits in the spring and summer months, the main holiday season, and in the past it has reported losses in the half year to March 31st.

Deutsche BA was formed in 1992 and has a fleet of 16 Boeing 737-300 aircraft, the same type of aircraft that EasyJet and its British target Go use as well as Europe's biggest no frills airline Ryanair Holdings Plc.
EasyJet has been in talks for several months with Go's owners, 3i Group Plc, which owns forty three percent and speaks for more than 23 percent held by other investors, and Go management, which owns another 22.5 percent.

Separately on Wednesday Go reported its own annual results, disclosing it made a profit from operations of 17 million pounds for the twelve months to the end of March, up from 4.2 million pounds for the previous year, and struck a forty six percent rise in revenues to 233.7 million pounds.
Analysts say that EasyJet might now have to pay anything up to 600 million pounds for Go.