Wednesday, June 20, 2001

All signals Go: Airline sold Prague remains key route for profitable, low-cost line By Alan Levy Everything's coming up rosy for Go, the low-cost airline created in 1998 by its American chief executive officer, Barbara Cassani, for British Airways (BA). On June 15, Go Fly Limited announced that it had surpassed its third-year break-even target, turning a 4 million British pounds ($5.6 million/221 million Kc) annual profit for the 12 months ending March 31. On the same day, the BA subsidiary was finally sold, to one of Europe's largest venture-capital companies, London's 3i, in a 110-million-pound management buyout. Cassani and Go's management team will remain in place. As part of the purchase agreement, 19 Go senior managers will be investing their own money in the company, while the rest of Go's 750 employees will be offered stock options that can be exercised when the company is taken public -- something Cassani and 3i hope to see happen in a couple of years. In total, 22 percent of the business will belong to current and future employees. There was no shortage of bidders for Go, which BA decided to put on the market last November, saying its low-cost structure didn't fit in with BA's future plans. But Cassani told The Prague Post in a weekend telephone interview that 3i won out because "they backed existing management, are committed to employee involvement -- and came up with the money." The deal is structured with 3i paying 80 million pounds cash up front, 20 million pounds in loan notes that Go will eventually repay to ex-parent BA, and another 10 million pounds that will go to BA at a later date. "Another consideration," Cassani added, "was 3i's successful track record floating its companies." Rejoicing in her good news, the 40-year-old aviation mogul said she felt happy as a bride "and just as exhausted. It's like my own wedding in 1985 [to London merchant banker Guy Davis]. I don't remember a thing." Go began flying between London and Prague in September 1999. Its entry into the market triggered a price war with Czech Airways (CSA) and British Midland, taking the round-trip fare down from the 8,000 Kc -10,000 Kc range to as low as 3,000 Kc. After British Midland withdrew from the route in May 2000, Go doubled its service to two flights daily and the bargain price on both Go and CSA stabilized between 4,000 Kc and 5,000 Kc. "I wish I had a third plane to put on the Prague route," Cassani said in a May interview at Go headquarters in London Stansted Airport. "Prague is a profitable part of the Go network." She characterized the Czech market as "robust, given the constraints of our business, which relies on credit cards and computers" to keep administrative costs low. "But there are fewer people in the Czech Republic with credit cards, so we tend to be attractive to expats who do have them," she said. "Given the way we are, we're happy with our Czech clientele, which generates about 15 to 20 percent of our traffic on the route." 3i at a glance More than 40 offices around the globe covering Europe, Singapore, Japan and the United States 50 years of experience, listed on London Stock Exchange in 1994 When investing, looks for ability and integrity of the management, growth potential In past five years, helped more than 100 businesses make an initial public offering Has investments in industries including communications, engineering, food, health care, leisure, media, oil and gas, software, Internet, transport and logistics From its Stansted base, Go flies 15 Boeing 737s to 20 destinations in Europe. Its passenger numbers went up 46 percent in the year ending March 31 to 2.76 million. Revenues also rose, to £159.7 million, up 59 percent. On May 22, a new Go hub in Bristol, England, started serving eight destinations. Though Prague is not one of them, Cassani said the new ownership structure "means we'll be able to grow the business and, for example, consider flying between Prague and Bristol or Scotland. "We won't be constrained by a lack of financial resource. Being properly capitalized to grow and develop the business means that we'll be able to add services when we feel the time is right as opposed to 'When can we afford to lease new aircraft?' etc. etc.," she said. Rod Eddington, BA's chief executive who decided to sell Go last fall, called the deal "an excellent return on our initial £25 million investment in the airline three years ago." Tom Sweet-Escott, 3i's director, said the company had been enormously impressed with Go's achievements so far. "We are delighted to be able to back its highly committed team," he said. "The [aviation] business has real opportunities ahead of it in this fast-growing low-cost sector. ... This investment reinforces our commitment to the larger buyout market." 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