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Note 6: Business combinations

In July 2008, the Group subsidiary, OpenSkies, acquired the entire issued share capital of the French airline L’Avion, for a cash consideration of €68 million (£54 million). Additional consideration of €10 million (£9 million, retranslated as at March 31, 2009) is payable in July 2009, based on the terms of the Purchase Agreement. The retranslation difference of £1 million has been charged to currency differences in the income statement. L’Avion was a privately owned business class airline that operated two Boeing 757s between Paris (Orly) and New York (Newark) airports. The operations of OpenSkies and L’Avion were merged in April 2009.

Details of the fair value of the net assets acquired and goodwill arising on the acquisition of L’Avion are as follows:

a  Purchase consideration

£ million  
Cash consideration 54
Transaction costs directly associated with the acquisition 2
Contingent consideration 8
Total purchase consideration 64
Fair value of net assets acquired 59
Goodwill arising on acquisition 5

The goodwill is attributable to the workforce of the acquired business and synergies expected to arise after OpenSkies’ acquisition of L’Avion. As a result of the goodwill impairment review performed as at March 31, 2009, goodwill associated with the acquisition was considered to be impaired, and accordingly an impairment charge of £5 million has been recognised in the consolidated income statement (note 19).

b  The assets and liabilities arising from the acquisition are as follows

£ million Carrying amount Fair value
Property, plant and equipment 6 6
Landing rights   35
Prepayments and accrued income 3 3
Other current assets 4 4
Cash and cash equivalents 22 22
Trade and other payables (11) (11)
Net assets acquired 24 59

c  Net cash flow in respect of the acquisition comprises

£ million  
Cash consideration 54
Transaction costs directly associated with the acquisition 2
Cash and cash equivalents in subsidiary acquired (22)
Cash outflow on acquisition included in the cash flow statement 34

d  Contribution to Group results

The acquired airline contributed revenues of £23 million and a net loss of £7 million to the Group for the period from the date of acquisition to March 31, 2009. If the acquisition occurred on April 1, 2008, Group revenues would have been £9,012 million and loss after tax would have been £363 million. These amounts have been calculated using the Group’s accounting policies and by adjusting the results of the airline to reflect the additional amortisation that would have been charged assuming the fair value adjustment to intangible assets had been applied from April 1, 2008, together with the consequential tax effects. The amounts calculated are not affected by the Group’s decision to change the economic life of landing rights acquired within the EU to that of an indefinite economic life as this prospective change took place in the post-acquisition period, on September 30, 2008 (note 18).

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