EasyJet acquires option on BA's German airline


Budget airline easyJet has surprised the market by announcing it has acquired an option to buy BA'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, Mr Ray Webster said in a statement on today. "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 budget airline Go-Fly, with the market expecting a big rights issue to pay for any deal done.

Privately-owned Go was also part of British Airways until the group sold it off last year for £110 million sterling to management and institutional investors led by venture capital fund 3i.

BA said the Deutsche BA deal was potentially worth between £18.3 million and £28 million 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, under the option itself BA said 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 13,500 jobs and restructuring its shorthaul 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 shorthaul business," BA said in a statement, adding it was consistent with its plan of selling non-core assets.