EasyJet pounces on BA's German airline
LONDON, England (CNN) -- EasyJet, Europe's second-largest low-cost airline, said it has an agreement to buy British Airway's German domestic carrier, as it continues its drive to dominate the European no-frills market.
Under the terms of the agreement, easyJet can buy Deutsche BA (DBA) for between 30 million euros and 39 million euros ($27-$35.5 million) at any time until March 31, 2003. EasyJet (EJZ) hopes to transform the airline into a low-cost operator.
EasyJet's decision to take a long hard look at DBA is an indication that breaking into Europe's biggest market could take some time, analysts said.
"This is recognition that they could quickly and easily enter the market in its own right," Chris Tarry, airline analyst at Commerzbank, told CNN.
"They have a lot of work to do. It's a tough market to crack and DBA has never made a profit. DBA made a loss of 20 million euros in the last three months."
The London Luton-based airline needs to change the cost structure of the business from a travel agent-based seller of services to an Internet retailer. EasyJet and its bigger rival Ryanair (RYA) currently sell more than 90 percent of their tickets online.
Deutsche BA was formed in 1992 and has a fleet of 16 Boeing 737-300 aircraft, the same aircraft flown by low-cost airlines. Budget airlines fly one type of airline to reduce engineering, servicing and training costs.
"Germany is the biggest domestic air market in Europe,'' easyJet Chief Executive Ray Webster said. "But it is poorly serviced by low-cost airlines, especially in comparison to the UK.''
EasyJet had been expected to announce the acquisition of rival British budget airline Go-Fly on Wednesday. But instead the company said it was still in talks and hoped to conclude an agreement soon. British Airways had sold Go to its management and venture capital fund 3i for £110 million last year.
EasyJet could pay as much as £600 million for Go, analysts have said.
British Airways (BAY) said easyJet will assign three managers to DBA and contribute 5 million euros towards costs and pay 600,000 euros a month until it agrees to complete the transaction.
BA, which is slashing 13,500 jobs and restructuring its European operations, hopes the move will help it to move into profitability.
"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.
Analysts said BA may have considered closing the business if it had not been able to agree a sale.
EasyJet's stock slipped 2.6 percent to 423 pence in midday London trading on Wednesday, on continued concern about how EasyJet would pay for the acquisition of Go.
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