EasyJet is paying £103 million to buy GB Airways, the Gatwick-based airline and franchise partner of British Airways, in a deal which will give it 34 new routes to Southern Europe and North Africa.

The deal will see British Airways end its franchise with GB. The British flag carrier said it will now compete with easyJet from Gatwick, when it starts six new flights from the Surrey terminal.

Although easyJet has said it will grow organically, it is prepared to make acquisitions at the right price.

Following the deal, easyJet will operate 24 per cent of Gatwick's slots and will fly approximately eight million passengers across 62 routes from Gatwick - making its presence at Gatwick as large as BA's.

Andy Harrison, chief executive of easyJet, said: "This is an acquisition which both strengthens our customer offering at London Gatwick, our biggest base with an attractive catchment area, and allows us to fully capitalise on the potential of the airport through a large number of slots."

GB Airways, which is owned by the Bland Group, a family investment company specialising in transport, has been up for sale for about nine months.

It had conducted negotiations with British Airways, as it became clear the airline was unlikely to renew its franchise in 2010, but these came to nothing.

A spokesman for easyJet said that the deal would give the budget airline 15 more aeroplanes at Gatwick, on top of the 20 it already has there. Integrating the airline will release significant cost savings due to economies of scale in insurance, aircraft financing and ground handling costs.

The easyJet spokesman said that it currently achieved £4 of profit per seat, compared to GB Airways's £1 of profit per seat.

British Airways plans to replace the GB Airways services with full BA services from Heathrow to Faro and Malaga and from Gatwick to Faro, Gibraltar, Ibiza, Malaga, Palma and Tunis at the end of March 2008.

The airline will also end its franchise with Loganair from October 25, 2008 and begin a codeshare arrangement with the Scottish carrier.

Willie Walsh, chief executive of BA, said: "UK franchises have outlived their purpose. easyJet has made an offer to buy GB Airways and this has enabled us to end the franchise agreement early. We had an option to buy GB Airways but we rejected it."

In the past, franchises enabled BA to be in as many locations as possible however now the airline prefers to focus on profitable routes and is no longer interested in being the biggest operator.

During this period flights will operate as normal. On completion, passengers can accept to be rebooked on easyJet or will be entitled to a full refund.

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