KLM makes conditional offer for BA's Go

Leo van Wijk, chief executive of KLM, the Dutch national airline, said on Tuesday that the group had submitted a conditional offer to take over Go, British Airways’ low cost subsidiary.

The offer was “conditional and contingent on BA accepting certain elements,” said Mr van Wijk. “If it is acceptable we can firm it up. We want to have their reaction, then we can call it a final bid.”

KLM had made the conditional offer jointly with a private equity group, he said.

The terms that are still to be agreed include the treatment of the leases on 13 of the 15 aircraft in the current Go fleet, which are presently guaranteed by BA, said Mr van Wijk.

KLM was aiming to merge Go with Buzz, its own low cost subsidiary, which also operates from London Stansted airport. “We would bring in our Buzz investment and know how to manage the group. There are enough management resources without Go,” said Mr van Wijk.

It is understood that the negotiations between KLM and BA are focusing importantly on the future management structure of a merged low cost operation.

The present Go management is led by Barbara Cassani, who joined BA in 1987 and was appointed Go chief executive when the no frills operation was established as an arm’s length subsidiary by BA in late 1997. It started flying in May 1998.

Ms Cassani has made clear that she is interested in remaining as chief executive of an independent Go and has said that she was prepared to work with the private equity groups, which showed an early interest in taking over the airline.

It is understood that the main rival offer that BA is still considering is from 3i, the venture capital and private equity group, which has previously been involved in the airline sector with its highly successful investment in the 1990s in CityFlyer Express, which was taken over by BA in late 1999.

BA has narrowed the field of preferred bidders as the sale of Go enters the final stage and last week rejected another offer made jointly by two private equity groups, Electra Partners and Barclays Private Equity.

KLM is the only established airline to have shown a sustained interest in taking over Go. It is conducting a strategic review of its future involvement in the low cost sector, and has made clear that it could choose to close or sell off its loss-making Buzz operation, if it is unable to gain the necessary scale through a merger with Go.

“Getting out is one option,” said Mr van Wijk, “it is a market where only a limited number of players can survive.”