EasyJet shares soared nearly 10% Monday morning after the UK budget airline agreed to a $7.3 billion takeover proposal from US private-equity firm Castlelake, as low-cost carriers face a major jet fuel crunch.
London-listed shares in EasyJet jumped 9.5% by about 10 a.m. ET, hitting a fresh 52-week high.
The Bedfordshire, England-based airline announced Sunday that it had accepted a 5.5 billion pound offer – or roughly $7.3 billion – from Castlelake. It previously rejected four bids from the asset manager, including a 4.93 billion pound proposal last month.
Castlelake has until Aug. 3 to finalize the new offer – which represents a cash bid of $6.90 a share – or scrap the deal altogether.
Airlines – particularly low-budget carriers operating on tight margins – have faced immense pressure amid the Iran war, which blocked the Strait of Hormuz for weeks.
The maritime route typically transports about 40% of Europe’s jet fuel supply, and its blockage more than doubled fuel costs for European airlines. The International Air Transport Association has warned that global airlines could see their profits halved this year as a result.
In its half-year earnings, reported in May, EasyJet said it has suffered a pre-tax loss of 552 million pounds for the six months ending March 31 – despite seeing a 12% rise in revenue to 4 billion pounds.
“In discussions between the parties, Castlelake has emphasised its tremendous respect for easyJet and its people, along with its intention to support its future growth and transformation to a stronger, more resilient European airline for the benefit of all stakeholders if the transaction proceeds to completion,” EasyJet and Castlelake said Sunday in a joint statement.
“Castlelake is supportive of easyJet’s fleet modernisation programme, which it regards as central to the Company’s long-term competitiveness, efficiency and sustainability objectives.”
The “no frills” airline is known for its bright orange fleet and for operating out of major airports like London Gatwick and Paris-Charles de Gaulle. Like other budget airlines, EasyJet charges extra fees for checked bags, seat selection and in-flight meals.
It’s not the first budget airline to be slammed by higher fuel costs.
Spirit Airlines ceased operations in May after it failed to secure a bailout from the Trump administration, following its second bankruptcy filing in two years. It had been operating at massive losses – and the jet fuel crunch tipped it over the edge.
Meanwhile, experts have warned that American travelers could be facing one of the most expensive summers for European vacations as airlines slash thousands of flights, add surcharges to transatlantic routes and hike prices.
Along with quietly raising ticket prices, many airlines have started adding surcharges and raising checked bag fees to offset higher fuel costs – which typically land among carriers’ largest operating expenses.