Ryanair swoops on Buzz in €5m deal

RYANAIR swooped yesterday to pick up rival low-cost carrier Buzz for just €5m from KLM, while simultaneously ordering 100 new Boeing jets boosting its fleet to 250 aircraft within eight years.

Ryanair ordered a further 22 Boeing 737-800s and increased its options by a further 78, bringing total orders of 737-800s to 250 since January 2002, at a list price of €15 billion.

Of those, 125 are firm orders and the rest are options. The 22 newly-ordered airplanes are scheduled for delivery in 2004 and 2005.

Ryanair’s board of directors and chief executive Michael O’Leary broke with their strategy of organic growth to acquire Buzz for €23.9 million, which falls to less than €5m as Buzz has €11m in cash.

This still leaves Ryanair with cash deposits of €1.05 billion which will be eaten up as firm orders come on stream, followed by options

By any standards, Buzz is a bargain buy from KLM, who wanted to off-load the loss-making operation, and compares more than favourably with easyJet’s 400m acquisition of Go last year.

Merrion Stockbrokers John Mattimoe said: “Ryanair is paying a net €5m for an airline that will carry 4 million passengers this year in its current format, while easyJet paid €400m (stg£258m) for circa five million potential passengers in Go.”

However, NCB analyst Shane Matthews said: “The true cost of the deal will only be known on Tuesday when we clarify the ownership profile of Buzz’s fleet. Ryanair may find itself with some long-term liabilities in the form of aircraft leases.”

Mr Mattimoe said there is another way to look at the deal going forward.

“What will Buzz look like when fully integrated? Assuming Buzz’s existing 12 aircraft are replaced with Ryanair-owned 737-800s the potential passenger number would be about five million per annum.

"This would potentially allow revenue of €220m and operating profit of €65m in FY05. This would represent a return of 18-20% on the total capital invested in Buzz at this stage (including cost of replacement aircraft). This would add 5c to EPS, or 11% of our existing FY05 forecasts,” he said.

Ryanair boss Michael O’Leary said the timing of the Buzz deal was “opportunistic”.

“The financial cost is small and the diversion of management time will be minimal since Buzz is based at our main UK base. We have a simple and effective plan to turn it around by delivering lower fares, rapid traffic growth and Ryanair-type profitability,” Mr O’Leary said.

Goodbody’s Joe Gill said Ryanair makes a net profit of €15 per passenger and the four million passenger potential of Buzz could add €60m to the bottom line. Ryanair is expected to announce profit before tax of €260m for year ending March 2003.

Ryanair are also very upbeat on the Boeing deal and predict that the extra aircraft will enable the Irish low-cost airline to increase passenger numbers from 17.5m to 50m, making it the largest schedule airline in Europe, ahead of British Airways, KLM and Lufthansa.