Largest competitor STA an obvious target in student travel agency's trawl for 'financial aid,' writes Arthur Beesley

A swiss-controlled holiday company, STA Travel, has emerged as the most likely suitor for USIT World, the troubled student travel agency.

STA is based in Australia but owned by a private Zurich holding firm, Diethelm Keller. The travel company, which had revenues last year of €2.9 billion (£2.28 billion), is USIT's largest competitor in the global student and youth tourism business.

Efforts intensified yesterday to save USIT which is believed to have a deficit of up to €12 million. It is thought that Aer Lingus ranks among the company's largest creditors, with an exposure of more than €1 million.

USIT's spokeswoman would not comment on whether the company was preparing to seek the appointment of an examiner. Its founder and chairman, Mr Gordon Colleary, did not return two telephone calls.

A person familiar with the difficulties at USIT said STA was the obvious target in a trawl for the "additional financial assistance" referred to in a company statement issued to The Irish Times on Thursday evening.

Formerly known as Student Travel Australia, STA has a similar culture to USIT. Like USIT, which started life in 1959 as a campus travel agency part-owned by the Union of Students in Ireland, STA emerged 30 years ago as a travel service for students in Australian universities.

With about 300 branches in 70 countries and more than 2,000 staff, the company's strategy is to "grow aggressively".

No one was available to respond to press queries at its offices in London and Zurich yesterday.

A takeover of USIT would certainly give STA additional clout in its efforts to dominate the niche. The Irish company, which employs 1,500 staff in 66 countries, was valued at more than €120 million in 2000. Its annual revenues worldwide were thought to amount to about €317 million.

Thursday's statement, which said advanced negotiations were likely to conclude "imminently" with the sale of USIT, was reissued by the company yesterday. The situation had not changed, its spokeswoman said.

An informed figure confirmed that USIT's difficulties were caused by large losses at Council Travel, a US-based student holiday agency acquired by the Irish company on September 1st last.

Referring to the attacks on the US 10 days later, USIT said: "The events of September 11th resulted in substantial losses which could not be recouped from normal trading."

The statement did not name Council Travel, but said the US business had recovered strongly and was now running ahead of a revised budget.

That turnaround is deemed to offer a window of opportunity to potential bidders as it would reduce the losses taken on in an acquisition.

The sale process is thought to have been initiated after USIT's banks, including National Irish Bank and Bank of Ireland, appointed the accounting firm KPMG to examine its books.

The group's books are said to be "extraordinarily complex" and are believed to contain inter-company balances and guarantees between its operating firms in Ireland, Britain and the US.