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Go To Seek IPO

The low cost airline will seek an IPO sometime this year in order to take advantage of market situation...

Go, the UK low-cost carrier, is planning an initial public offering on the London stock market late this year, as it seeks to take advantage of strong investor interest in the no- frills airline sector. The group is also negotiating an order with Boeing and Airbus for between 60 and 80 new aircraft that could be worth up to $3.5bn at list prices before large discounts. Negotiations should be completed by the spring.
Go said that it is planning to expand its fleet from 20 to more than 80 aircraft by 2008, as it sought to keep pace with the growth of Ryanair and EasyJet, the leading European low-cost carriers which have recently announced plans for big aircraft purchases.
All three airlines are seeking to take advantage of present deeply depressed prices for new and secondhand aircraft. The low-cost carriers are capturing a growing market share from the established network airlines.
Chris Avery, aviation analyst at JP Morgan, dismissed fears that low-cost carriers were expanding too quickly. "There is plenty of room for three to four carriers for many years to come, and there are still huge growth opportunities in continental Europe, that have barely been tapped," he said.
Go, which was set up by British Airways and started flying in 1998, was sold in June last year for £100m ($141.6m) to a management buy-out team supported by 3i, the venture capital group. BA will receive a further £10m if the IPO of Go is completed within five years of the management buy-out.
Go is owned 67.5 per cent by 3i-controlled funds, ten per cent by Barclays Private Equity, and 22.5 per cent by management and employees including a four per cent stake held by Barbara Cassani, chief executive. Ms Cassani said on Thursday that the time-scale for the IPO had been brought forward. It could take place "from late 2002 to late 2003." Go pre-tax profits are estimated to exceed £10m for the current financial year to the end of March, more than double the £4m earned in 2000/01.
Ms Cassani said that financial advisers for the IPO were unlikely to be appointed before the summer. Go had changed auditors from Ernst & Young, the BA auditor, to Deloitte & Touche, as part of the preparation for the IPO. It had increased passenger volumes from 2.8m to 4m in the year to the end of March and expected passenger numbers to rise to around 6m in the coming year.
Capacity was planned to rise by around 30 per cent a year for most of the decade with plans to open a new base each year in continental Europe to add to existing UK operating bases at London Stansted, Bristol International and East Midlands airports. The airline began flying from East Midlands airport on Thursday and will have launched six destinations to Alicante, Malaga, Faro, Prague, Edinburgh and Glasgow by late May.
It is increasing its present fleet of 20 Boeing 737-300 aircraft to 27 by July with the addition of seven secondhand aircraft on operating leases. Ms Cassani said that the new order would be for between 60 and 80 aircraft with deliveries spread over five to six years with the final number depending on whether the group decided to go with Airbus or Boeing. Go would operate a single family fleet rising to 80 aircraft by 2008.
Some existing leased Boeing 737 aircraft would be retained, if it chose the US manufacturer, but all would be released if it placed the order with Airbus for A320 family aircraft. It was negotiating financing for the deal with a number of banks and leasing companies and could use a combination of sale and lease-back deals, debt and finance leases.
The IPO will be a crucial step to strengthen the Go balance sheet to support the aircraft orders.