LONDON, Oct 25 (Reuters) British budget airline easyJet has agreed to buy rival GB Airways for 103.5 million pounds (2 million) in cash to strengthen its position at its biggest airport base, London's Gatwick, it said on Thursday.
The deal will end GB Airways' franchise agreement with British Airways, which said it would start services on some of the routes previously covered by the franchise deal.
EasyJet said it was buying GB Airways from Bland Group Ltd, a privately-owned leisure and travel firm, and that the deal would exclude GB Airways' take off and landing slots at London's Heathrow airport, where it operates five routes.
Following the deal, easyJet will operate around 24 percent of slots at Gatwick, London's second-biggest airport, compared with British Airways (BA) on around 17 percent.
''We expect the acquisition to be earnings positive in our current financial year,'' easyJet Chief Executive Andy Harrison said in a statement.
EasyJet said it expected the deal to be completed by Jan.
31, 2008, at the latest and that it would also lead to an unspecified amount of cost savings and revenue synergies.
''Overall, the move strengthens easyJet's position at Gatwick, which is the airlines biggest base,'' NCB analysts wrote in a research note, keeping a ''buy'' rating on easyJet shares.
At 0810 GMT, easyJet shares were up 2.8 percent at 599 pence, while BA shares were up 1.7 percent at 430.75 pence.
BA, Europe's third biggest airline, said it had an option to buy GB Airways, but had decided against it and as a result the franchise deal between the two firms would end from March 2008.
''It has become clear that GB wanted to move closer to the low-cost style of doing business and we're committed to retaining a two class full service proposition for our customers at Heathrow and Gatwick,'' BA Chief Executive Willie Walsh told reporters. ''Franchising in your home base does create confusion in the mind of the customer and this allows us to concentrate on our core activities,'' he said on a conference call, adding that BA remained committed to franchise agreements outside the UK.
BA, which said it would also end its franchise agreement with Scottish carrier Loganair from October 2008, said it planned to start services from Heathrow to Faro and Malaga and from Gatwick to Faro, Gibraltar, Ibiza, Malaga, Palma and Tunis.
GB Airways made a profit before tax of 2.6 million pounds in the year ended March 31, on revenues of 250 million pounds.
REUTERS SR ND1602