Easyjet Eyes Up Deutsche Ba

EasyJet today underlined its determination to become Europe's leading budget airline as it announced moves to acquire an option to buy British Airways' German domestic airline.

EasyJet, already in talks to buy rival Go, would transform Deutsche BA into a no frills carrier, and should easyJet clinch a deal, the combined carrier would overtake Ryanair as Europe's largest discount airline.

"Germany is the biggest domestic air market in Europe," said easyJet chief executive Ray Webster. "But it is poorly serviced by low-cost airlines, especially in comparison to the UK."

EasyJet's possible move into the German market came just days after it revealed it was in advanced and exclusive talks with Go. The airline is expected to finance the deal by issuing more shares.

Go was also part of BA until it was sold last year for £110m to management and institutional investors led by venture capital fund 3i.

Formed in 1992, Deutsche BA is Germany's second-largest scheduled domestic carrier with 860 staff. It operates 130 flights each day on seven German domestic routes, flying from Berlin to Dusseldorf, Munich, Stuttgart and Cologne/Bonn and from Munich to Dusseldorf, Hamburg and Cologne/Bonn.

In the 2000-01 financial year, Deutsche BA had a turnover of £212.5m and carried 3.5m passengers.

BA said the Deutsche BA deal was potentially worth between £18.3m and £28m, depending on when easyJet exercised its option, which was valid until March 31, 2003, with the right for easyJet to extend it to July 3.

More immediately, easyJet will assign three of its managers to Deutsche BA, contribute £3m towards capital expenditure and pay BA £366,000 a month until it exercises the option.

BA is retrenching to focus on core operations after a dismal year that culminated in the September 11 attacks in the US, deepening already hefty losses.

The carrier is cutting 13,500 jobs and restructuring its short haul operations in Europe in response to the slowdown and competition from budget carriers.

"The move to sell DBA is a further step in British Airways' strategy to improve performance of its European short haul business," BA said.

While established carriers such as BA have floundered, their discount rivals have flourished. Today's financial results from easyJet and Go emphasised the point.

For the six months to March 31, easyJet's revenues leapt 36% to £194m while pre-tax profits came in at £1m, compared to interim losses of £10.3m a year ago.

Meanwhile, Go said operating profits for the year to March 31 soared 300% to £17m while turnover jumped 46% to £233.7m.