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. Last Updated: 07/27/2016

Ryanair Gets a Bargain On Buzz and Boeings

LONDON/DUBLIN, Ireland -- Ryanair Holdings PLC leapfrogged back to the top spot of Europe's budget airline industry Friday with a potential $6 billion dollar deal for new planes from Boeing Co. and the purchase of smaller Dutch rival buzz.

Ryanair said it had ordered 22 Boeing 737-800 aircraft worth more than $1.3 billion at list prices and took options to buy 78 more, which would give it the second-largest 737 fleet behind U.S. low-cost pioneer Southwest Airlines Co. The deal has a total potential value of $6 billion at list prices.

"The aircraft orders ... will allow Ryanair to carry in excess of 50 million passengers [annually] by 2010," Ryanair European sales and marketing manager Sinead Finn said.

The Irish carrier also said it had bought buzz for 23.9 million euros ($25.9 million) from KLM Royal Dutch Airlines to gain key routes in France and Germany, adding pressure on already struggling full-service European carriers.

"The market is likely to be slightly skeptical of this [buzz] deal," said WestLB Panmure analyst Gert Zonneveld. "Airline acquisitions and mergers are notoriously difficult."

British Airways Plc, Europe's biggest airline, carried 27.4 million passengers within Europe last year, compared with 14.5 million passengers carried by Ryanair.

Chief executive Michael O'Leary said the buzz purchase was a bargain, at a cost of less than 5 million euros after the deduction of a 19 million euro cash pile buzz has on its books and with buzz expected to be profitable in a year.

Ryanair and buzz both operate major hubs at London's Stansted Airport, a key airport for Europe's low-cost carriers.

"I think it's a good move," said Daniel Solon, an analyst at aviation consultancy Avmark International. "They bought it at probably less than what they pay for beer in a year."

Other analysts agreed the price was attractive.

"We see low execution risk," said Goldman Sachs analyst Hugo Scott-Gall on integrating buzz into the Ryanair business model.

For KLM, the sale should bring in much-needed cash to pay for a settlement with Italy's Alitalia following their aborted merger and should boost the struggling Dutch airline's profits.

"Buzz is a loss-making operation, which means the sale is going to enhance KLM earnings," said KLM chief financial officer Rob Ruijter on a conference call.

KLM said valuable airport slots and other items it would receive from Ryanair following the sale would boost the value of the deal to the Dutch group to about 30 million euros.

The $6 billion value of the sale is based on list prices from Boeing, which said discounts it gave Ryanair, rapidly becoming one of its favorite customers, were similar to those on Ryanair's order for 100 737s plus 50 options last January.