July 2 (Bloomberg) -- British Airways Plc agreed to buy Paris-based L'Avion for 54 million pounds ($108 million) to enlarge its new OpenSkies unit, expanding flights between France and the U.S. under an international treaty introduced in March.

L'Avion, which began flying in January last year, will be integrated into OpenSkies after the deal is completed this month, London-based British Airways said in a statement today. The purchase from private investors includes 26 million pounds of cash.

Like OpenSkies, L'Avion operates to the U.S. from Paris Orly airport using Boeing Co. 757 jetliners. The British Airways subsidiary began flights last month to New York John F. Kennedy airport. L'Avion, which flies to Newark, is the last independent business class-only carrier after Silverjet Plc, Eos and MAXJet Airways Inc. went bankrupt as record oil prices eroded profit.

``OpenSkies really isn't an all-business offering but it does look a bit like one and that impression is strengthened by this move,'' said Douglas McNeill, an analyst at Blue Oar Securities in London with a ``buy'' rating on British Airways. ``It represents a vote of confidence in the trans-Atlantic premium market, which is very important to BA. People have been concerned about the strength of demand there.''

British Airways fell 4 pence, or 1.9 percent, to 203.5 pence after earlier gaining 4.3 percent. The stock has declined 34 percent this year, valuing Europe's third-biggest airline at 2.35 billion pounds.

OpenSkies is the only carrier created specifically to take advantage of the U.S.-European Union treaty of the same name, which allows airlines to fly between the U.S. and any of the bloc's nations instead of just their home countries.

Business Berths

The unit's single Boeing 757 has 24 business-class berths that convert to beds, 28 seats in premium economy and 30 in economy. Upscale seating accounts for about half of British Airways' revenue. L'Avion, owned by Societe de Participation Aerienne and run by former British Airways executive Marc Rochet, operates two 757s with 90 business-class seats.

``L'Avion is a successful airline that has built up a premium business in a relatively short period,'' British Airways Chief Executive Officer Willie Walsh said in today's statement. ``It has many synergies with OpenSkies and buying it provides a larger schedule and an established customer base.''

London Service

British Airways plans to start its own business-class service between London City airport and New York next year. Silverjet, Eos and MAXJet all failed after operating mainly between the two cities.

British Airways and L'Avion already had a codesharing deal that helped OpenSkies establish itself at Orly, an airport closer to the center of Paris than the larger Charles de Gaulle.

Dale Moss, managing director of OpenSkies, said the combination would bring the benefits of British Airways's fuel-price hedging to L'Avion and boost the pair's appeal to business clients through a third daily Paris-New York flight.

Record oil prices put ``challenging pressure on us, no question about that, but it remains to be seen how this game will play out,'' Moss said at a briefing in Paris, adding that he's ``hopeful'' the enlarged OpenSkies will be profitable by its third year, in line an original five-year business plan.

The two brands will gradually be combined into a single carrier flying in the OpenSkies livery, Moss said. Cabin configurations have yet to be decided.

`Faster, Stronger'

``We are happy to merge our operation with OpenSkies,'' Christophe Bejach, L'Avion's co-founder and chairman, said in the statement. ``This transaction will strengthen our current base and enable the combined airline to grow faster and stronger.''

L'Avion CEO Rochet previously ran Air Liberte, bought by British Airways in 1997 in an earlier push into the French market. The unit struggled to compete with Air France on what were predominantly domestic and short-haul routes and British Airways eventually sold its 86 percent stake to an investment partner of Swissair after 2 billion francs ($350 million) of losses.

Yan Derocles, an analyst at Oddo Securities in Paris, said the difference this time round is that the U.K. company is not confronting Air France head-to-head on key services.

``They're not going after the same type of clientele and if they don't increase capacity too much it won't bother Air France,'' said Derocles, who has a ``buy'' rating on shares of Air France-KLM Group, Europe's biggest carrier.

The analyst said British Airways ``had to buy L'Avion'' to gain take-off and landing slots at Orly.

To contact the reporter on this story: Tracy Alloway in London at talloway@bloomberg.netAndrea Rothman in Toulouse, France at aerothman@bloomberg.net

Last Updated: July 2, 2008 12:07 EDT