Few Cloudy
17th Jan 2003, 11:52
This is a verbatim quote from today's Evening Standard - motto: If you want to make a small fortune out of aviation, start with a big one...
BA set to give away German offshoot
Robert Lea, Evening Standard 17 January 2003
BRITISH Airways is prepared to give away Deutsche BA after a decade of losses at its German subsidiary that have run into hundreds of millions of pounds. The flag carrier is currently in an option agreement to sell Deutsche BA to easyJet for up to e39m (£26m).
But with the budget airline dithering over whether it wants to go ahead with the deal, senior BA sources have confirmed it is now prepared to sell the domestic German airline for only a nominal sum.
Ray Webster, chief executive of easyJet, has given himself until March to take up the option to buy DBA which he wants to convert to the no-frills business model and which he reckons is an easy way to enter the domestic German market. But analysts believe easyJet, which has pumped £9m into DBA since taking management control under last year's option agreement, is now cooling on the project.
EasyJet shares have halved in the past 12 months. The market value of the airline has fallen to less than £1bn. Investors have been unnerved by easyJet's difficulty in digesting its takeover of rival Go, especially as latest traffic statistics suggest the airline is mismatching its increased capacity with seasonal demand.
Webster has indicated the jury is still out on whether to go ahead with the DBA deal. 'We cannot say one way or the other,' he said when asked whether he would be taking up the option.
He cited increased competition in the German market, the ability to persuade local managers of the no-frills business model, and the need to overcome German labour laws in easyJet's move to cut costs within DBA.
But a senior BA source confirmed its priority is to get rid of DBA, which has been making losses of at least £30m a year since its launch in 1992, irrespective of whether the easyJet deal goes through. 'Let's face it, easyJet are not the only show in town,' said the source. 'We will dispose of the business, and yes, we would give it away for nothing if need be.'
That suggests that if easyJet does not take up its option, BA could open negotiations with other recent low-fare entrants into the German domestic market - Hapag-Lloyd Express, the new no-frills arm of the TUI travel giant and Germanwings, the new player in which Lufthansa has a minority stake. DBA has a fleet of 16 Boeing 737s, employs 800 staff and operates 130 flights a day.
With Ryanair also heavily committed to expanding in Germany, industry experts reckon German domestic competition will become every bit as cut-throat as the British market. It has already claimed one victim, as Sir Richard Branson's Virgin Express has pulled out of its plans to set up a hub at Cologne-Bonn because of the competition.
BA's exit from the German domestic market comes after the 2000 sale of its heavily loss-making French regional carrier Air Liberte for only £40m.
BA set to give away German offshoot
Robert Lea, Evening Standard 17 January 2003
BRITISH Airways is prepared to give away Deutsche BA after a decade of losses at its German subsidiary that have run into hundreds of millions of pounds. The flag carrier is currently in an option agreement to sell Deutsche BA to easyJet for up to e39m (£26m).
But with the budget airline dithering over whether it wants to go ahead with the deal, senior BA sources have confirmed it is now prepared to sell the domestic German airline for only a nominal sum.
Ray Webster, chief executive of easyJet, has given himself until March to take up the option to buy DBA which he wants to convert to the no-frills business model and which he reckons is an easy way to enter the domestic German market. But analysts believe easyJet, which has pumped £9m into DBA since taking management control under last year's option agreement, is now cooling on the project.
EasyJet shares have halved in the past 12 months. The market value of the airline has fallen to less than £1bn. Investors have been unnerved by easyJet's difficulty in digesting its takeover of rival Go, especially as latest traffic statistics suggest the airline is mismatching its increased capacity with seasonal demand.
Webster has indicated the jury is still out on whether to go ahead with the DBA deal. 'We cannot say one way or the other,' he said when asked whether he would be taking up the option.
He cited increased competition in the German market, the ability to persuade local managers of the no-frills business model, and the need to overcome German labour laws in easyJet's move to cut costs within DBA.
But a senior BA source confirmed its priority is to get rid of DBA, which has been making losses of at least £30m a year since its launch in 1992, irrespective of whether the easyJet deal goes through. 'Let's face it, easyJet are not the only show in town,' said the source. 'We will dispose of the business, and yes, we would give it away for nothing if need be.'
That suggests that if easyJet does not take up its option, BA could open negotiations with other recent low-fare entrants into the German domestic market - Hapag-Lloyd Express, the new no-frills arm of the TUI travel giant and Germanwings, the new player in which Lufthansa has a minority stake. DBA has a fleet of 16 Boeing 737s, employs 800 staff and operates 130 flights a day.
With Ryanair also heavily committed to expanding in Germany, industry experts reckon German domestic competition will become every bit as cut-throat as the British market. It has already claimed one victim, as Sir Richard Branson's Virgin Express has pulled out of its plans to set up a hub at Cologne-Bonn because of the competition.
BA's exit from the German domestic market comes after the 2000 sale of its heavily loss-making French regional carrier Air Liberte for only £40m.