Ryanair's relentless expansion continued apace yesterday as the budget airline ordered yet more planes from Boeing and swallowed up KLM's loss-making subsidiary Buzz.
Shares in the airline closed 11 cents stronger at €6.69 on the news of the deals which will expand its fleet and increase its presence in the strategically important Stansted Airport in London. The rise followed gains of almost 10 per cent a day earlier, despite sectoral worries about war tensions in the Gulf.
Ahead of third quarter results next Tuesday, the airline broke with its tradition of organic expansion by acquiring Buzz in a transaction described as "opportunistic" by its chief executive, Mr Michael O'Leary.
Less than a year after Ryanair ordered 150 Boeing 737-800 aircraft, the airline said yesterday that it had ordered 100 more of the planes from Boeing. The book value of the order is $6 billion (€5.58 billion) although Ryanair is likely to pay considerably less.
With 103 firm orders placed and 47 options exerciseable under last year's deal, Ryanair increased firm orders by 22 yesterday and added another 78 options to its order. Mr O'Leary said Ryanair had guarantees from the US government to borrow 85 per cent of the consideration.
The airline will fund the €23.9 million Buzz acquisition from its own reserves. But the real cost of that deal is a nominal sum of less than €5 million because Ryanair will acquire some €19 million in cash from Buzz when the deal is finalised on April 1st.
Buzz is believed likely to lose up to €30 million in the year to the end of March on sales of €140 million. It is forecast to carry some two million passengers in that 12-month period.
Predicting that it could eliminate the losses in less than a year, Ryanair forecast yesterday that it could increase passenger numbers this year to four million. Buzz was expected to make a positive contribution to earnings in the year to the end March 2004, it said.
Analysts welcomed the deal, noting that Ryanair would generate efficiencies by handing back to KLM six BAe aircraft at the end of March next year and replace them with more efficient Boeing 737s. "On the surface it's a good deal," said Mr Shane Matthews at NCB Stockbrokers.
Buzz's 21 routes ex-Stansted to airports in France, Germany, Holland and Spain would complement Ryanair's existing business, he said. Ryanair would also eliminate the use of the larger airports in Frankfurt and Charles de Gaulle in Paris, generating large savings.
"Can they turn the company around? I think they can," said Mr Matthews. The addition of four million passengers to its own 20 million next year would be achieveable. "On the face of it, it shouldn't tax them," he said.
Describing the deal as "astute, albeit opportunistic", Merrion Capital analyst Mr John Mattimoe said: "Ryanair is paying a net €5 million for an airline that will carry four million passengers this year in its current format, while EasyJet paid €400 million for circa five million potential passengers in Go."
