Easyjet pulls the plug on Deutsche BA buyout bid

Easyjet scrapped plans to buy British Airways' German subsidiary Deutsche BA yesterday, blaming the country's inflexible labour laws and cut-throat price competition from its national airline Lufthansa.

Shares in easyJet soared on relief that it had decided not to go ahead with a deal which was always seen by analysts as a high-risk move, particularly coming so soon after the takeover of the rival UK carrier Go.

Ray Webster, easyJet's chief executive, said there had been two "insurmountable obstacles" to going through with the DBA deal. One was the rigidity of German labour laws which made it impossible to move the DBA pilots and cabin crew onto flexible easyJet-style conditions of employment.

The other was the financial performance of DBA which had deteriorated since easyJet took out an option in May last year to buy the German carrier. DBA, which has 800 staff and a fleet of 16 Boeing 737 jets, is thought to be losing £2m to £3m a month because of the intense competition from Lufthansa and other low-cost operators that have entered the German market recently.

BA said that despite the collapse of the deal it had no plans to close DBA and was still hopeful of finding a partner. The rival German low-cost airlines Germani and Hapag-Lloyd Express, which is owned by the travel giant Tui, are both rumoured as alternative buyers.

Roger Maynard, BA's director of investments and alliances and chairman of DBA, said: "Once some stability returns to the world aviation market and the German economy recovers, we are confident that DBA, with its lower cost base and significant market share on the routes it operates, will be a viable and profitable force in the German market whether as part of British Airways or in partnership with others."

Keeping open the option to buy DBA has cost easyJet £6.2m. Had it gone ahead with the purchase of the airline, it would have cost £26.5m.

Mr Webster said there had been no dispute with DBA's staff over pay or flying hours. But the highly restrictive nature of German labour agreements meant that easyJet would not have had the flexibility to expand DBA in the way it wanted.

In addition to this Lufthansa had proved ruthless in protecting its German domestic market. When ever a low-cost airline came in with a fare which undercut Lufthansa, it would undercut them," Mr Webster said. He pointed, for instance, to the flat-rate €19 (£13) fares being offered by German Wings, a low-cost airline controlled by Lufthansa.

Ryanair, which has built an extensive operation in Germany but has largely avoided competing head on with Lufthansa, accused easyJet of running away from competition in Germany

Easyjet shares rose nearly 14 per cent to close 28p higher at 229p. BA shares also put on a spurt, closing 7.5p per cent higher at 117.5p.