The Icelandic owners of airline Sterling bought the operations of Denmark's Maersk Air on Thursday, making Europe's fourth-biggest low-cost airline in a bid to turn profitable amid brutal Nordic competition.
Danish Oil and Gas conglomerate A.P. Moeller-Maersk will sell the services and charter activities of its loss-making airline to Fons Eignarhaldsfelag, but will keep the aircraft and its freight business.
The Icelandic investment firm bought Norwegian airline Sterling in March and will merge the two carriers under the Sterling brand, creating an airline with 5 million passengers annually, to compete with larger Nordic rival SAS.
"After this we will be the fourth-largest low-cost carrier in Europe," said Sterling Chief executive Almar Orn Hilmarsson at a news conference.
He said the combined group would have the critical mass necessary to be profitable by the end of next year.
The financial details of the deal were not available.
Maersk Air, which the Danish group founded in 1970, has been struggling because of aggressive European competition, chalking up losses of DKK1.7 billion Danish kroner (USD$275.9 million) in the last four years.
"The airline business is not our core area, which is why we didn't consider buying Sterling ourselves," said Maersk Air Chairman Bent Carlsen.
Maersk said it would keep Maersk Air's fleet of 33 owned and leased aircraft and lease them to Sterling for up to six years, although it later intends to sell the fleet, valued at DKK2.3 billion (USD$373.3 million) in Maersk's 2004 annual report.
"For a long period Maersk Air has worked to ensure a profitable operation in the highly competitive aviation market in Europe. This has proven difficult, being a small airline," Maersk said in a statement.
SAS, the Nordic region's dominant airline, said on Wednesday it remains on track to return to profit after four years of losses, despite a slowdown in the Swedish economy and record high oil prices.
SAS, 50 percent-owned by the governments of Sweden, Denmark and Norway, has been hit hard over the last few years by a slowdown in air travel, fuel prices, overcapacity and increased competition from no-frills rivals.
"We already compete with SAS, but they're not our only rival on the market. If we had closed down both companies (Maersk Air and Sterling) it wouldn't be in the interests of the consumer. There would not have been any low-cost carrier left in the Nordics," said Hilmarsson.
Maersk Air made a loss of DKK499 million (USD$80.9 million) last year on sales of DKK1.9 billion (USD$308.3 million). Sterling has 10 Boeing 737-800 jets and had sales of DKK1.6 billion (USD$259.6 million) last year.
Fons Eignarhaldsfelag is controlled by partners Palmi Haraldsson and Johannes Kristinsson, who have previously been large shareholders in Icelandair and are the current owners of the low-fare Iceland Express airline.
The sale depends on the approval of competition authorities and is expected within one to two months, Maersk said, adding the deal would have a positive yet modest effect on 2005 results.
