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Note 5: Business combinations

In July 2008, the Group subsidiary, OpenSkies SASU, 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 the date of payment of August 2009) was paid, based on the terms of the Purchase Agreement. The retranslation difference of £1 million was charged to currency differences in the income statement in 2008/09. 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 intangible assets of the acquired business that are not separately identifiable, and synergies expected to arise after OpenSkies’ acquisition of L’Avion. As a result of the prior year goodwill impairment review performed as at 31 March 2009, goodwill associated with the acquisition was considered to be impaired, and accordingly an impairment charge of £5 million was recognised in the prior year consolidated income statement. No further charges have arisen as a result of the impairment review performed at 31 March 2010 (note 18).

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:

  Group
£ million 2010 2009
Cash consideration 54
Contingent consideration 9
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 9 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 31 March 2009. If the acquisition occurred on 1 April 2008, Group revenues for the prior year 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 1 April 2008, together with the consequential tax effects. The amounts calculated were not affected by the Group’s prior year 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 30 September 2008 (note 17).

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