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Castlelake will need to seek a European partner to ensure that its potential bid for easyJet complies with EU ownership rules, according to people familiar with the matter, complicating any deal for the low-cost carrier.
The US private credit group is at the early stages of forming a bid, but needs to meet an EU requirement that airlines are majority owned and controlled by EU nationals. The rules still apply to easyJet even after Brexit.
While Castlelake has some operations in Dublin and its owner Brookfield has extensive European operations, the group will still need to find some form of European partnership or other structure to satisfy the ownership rules, according to aviation lawyers and people with knowledge of the process.
One option would be for Castlelake to form a consortium with a European airline, as it did when it bought a stake in Scandinavian airline SAS alongside Air France-KLM.
However, any deal that involves one of Europe’s large airline groups — Lufthansa, Air France-KLM or British Airways owner IAG — would raise significant antitrust issues because of easyJet’s large network, analysts and lawyers said.
So far, IAG and Air France-KLM have not been approached by Castlelake or its representatives seeking a deal, according to people with knowledge of the matter. Both airline groups declined to comment.
Air France-KLM and Lufthansa are separately involved in bidding for a stake in Portuguese airline TAP.
Castlelake could seek a non-airline partner to help it clear the threshold, even though the business would likely be able to finance any takeover with its own funds, two of the people said.
EasyJet on Monday warned that there were “considerable regulatory, financial and other execution challenges associated with a potential takeover”.
The airline’s market value jumped by more than £300mn on Monday to £3.3bn in the wake of Castlelake’s statement that it was exploring a bid. The US group has until June 26 to submit an offer, or must walk away for six months. It already holds just over 2 per cent of easyJet’s shares.
The EU requires airlines to be more than 50 per cent owned by member states or nationals of member states in order to obtain an operating licence, and to be controlled by Europeans, meaning they have a “decisive influence” on the running of the airline.
At the moment, 15 per cent of easyJet’s shares are held by founder Sir Stelios Haji-Ioannou. One way to help meet the EU requirements would be to grant Haji-Ioannou a higher portion of voting rights, potentially by removing voting rights from some of the shares to be held by Castlelake, lawyers and analysts said.
Andrew Lobbenberg, airlines analyst at Barclays, said the ownership threshold was “relevant, but far from a barrier to a deal”. He said the group “could in theory partner with EU-domiciled investors”.
Analysts said that the rules could be bent in extreme circumstances, for example if an airline would otherwise collapse into insolvency. However, easyJet said on Monday that it was “in a position of strength, underpinned by an investment-grade balance sheet with a net cash position, alongside strong customer satisfaction and high employee engagement”.
The European Commission declined to comment on the potential bid by Castlelake, but a spokesperson said that “EU airlines require ownership and control by an EU entity”, with authorities in member states where airlines are licensed required to review compliance with these rules.
Johan Danielsson, a Swedish social democrat on the European parliament’s transport committee, said that rules to prevent foreign ownership or control should be “respected” in order to “safeguard fair competition, maintain clear control over the EU aviation market, and protect European interests”.
Castlelake, Haji-Ioannou and easyJet declined to comment.
