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Thursday, July 03, 2008
 

British Airways Lands L'Avion


Small-sized airlines are dropping out of the skies as record oil prices take their toll, giving British Airways a choice opportunity to boost its own tiny transatlantic venture.

The British carrier said on Wednesday it had bought a two-plane airline from France, called L'Avion, for a total cost of $107.6 million. The small deal will bolster British Airways' OpenSkies subsidiary, which launched last month with only one plane; once regulatory authorities clear the purchase, the carrier will run three daily flights between Newark and Paris Orly.

Shares in British Airways fell 1.7%, to 204 pence ($4.06), during afternoon trading in London, in line with the sector.

"The driver behind this is that the long-term survival of L'Avion is doubtful," said Geoff van Klaveren, analyst with Exane BNP Paribas. The privately-held business-class airline is reportedly unprofitable, which would not be surprising given the record price of fuel and the decline in demand for air travel.

The chief executive of L'Avion, Marc Rochet, said that the financial health of L'Avion was excellent; he told Forbes.com that the airline's cash position prior to the buy-out was 33 million euros ($52.4 million). His airline certainly has met a better fate than some: British business-class carrier Silverjet collapsed into bankruptcy last month, sacking all 420 staff. American equivalents like MAXjet Airways and EOS had filed for bankruptcy before then. (See "No Silver Lining For Silverjet")

A spokesperson for British Airways said that its OpenSkies venture hoped to reach profitability within the first three years of operation, and that the new acquisition did not change the time-frame.

Although there are almost no airlines similar to L'Avion available to whet British Airways' appetite going forward, the difficult business environment will likely see more carriers collapse into the arms of larger rivals.

"It's certainly an example of consolidation in the European industry," said Douglas McNeill, analyst with Blue Oar Securities. "My view would be that there will lots more to come."

Source: forbes.com

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