BA going for 3i?

British Airways is reported to have begun exclusive negotiations with private equity firm 3i on the sale of Go, its low-cost airline. Sources have suggested that 3i has put in a bid of £100m (E158.9m) according to the Financial Times.

Although many expected another airline to appear as the front runner in bidding for Go, 3i has experience in the airline sector. It invested in CityFlyer Express in 1991, which operated as a BA franchise before being taken over by BA for £75m in late 1999.

Two weeks ago, KLM, the Dutch national airline, submitted a conditional bid for Go with a view to merging it with Buzz, its own low-cost airline. The Dutch airline said recently that it may pull out of the low-cost sector if it failed in its bid to merge the operation with Go. Buzz is seen as too small to achieve the scale needed to compete with Ryanair and EasyJet, the leading low cost carriers in Europe, through organic growth alone. Buzz has a fleet of 10 aircraft and a network of 18 destinations in its summer schedule. It started flying 15 months ago.

The KLM bid for Go was made jointly with Carlyle, the US private equity firm, which was looking to add to the portfolio of its European fund which closed in 1998at E1bn in commitments. At December 31, 2000, Carlyle Europe had invested approximately E522m in thirteen portfolio companies.

The newspaper reports that talks between BA and KLM and Carlyle were effected partly by the valuation of Go, but also by concerns about the complexity of KLM's proposals. The competition authorities might also have investigated a proposed merger of Go and Buzz.

Goldman Sachs is advising BA on the sale. 3i has declined to comment on these reports.