A potential bidding war for easyJet could be on the horizon as US aviation finance firm Castlelake increases its stake in the Luton-based budget airline. Having acquired a 2% holding, Castlelake has until Friday to decide whether to proceed with a formal offer to take over the company.

EasyJet, which is listed on the London Stock Exchange, has characterized Castlelake’s interest as “opportunistic.” The airline’s market capitalization currently stands at just over £3 billion, a significant decline from approximately £7 billion in 2015. The company has faced mounting challenges, including elevated fuel costs due to ongoing geopolitical tensions linked to the Iran conflict and subdued summer holiday bookings. Despite these headwinds and a share price that has yet to fully rebound since the COVID-19 pandemic, easyJet’s modern aircraft fleet is estimated to be worth around £5 billion.

Adding to the potential for heightened takeover activity, Luis Gallego, chief executive of International Airlines Group (IAG) — the parent company of British Airways — recently indicated possible interest in easyJet. However, he highlighted the stringent European competition regulations as a major obstacle, describing them as “very, very difficult” and impeding necessary industry consolidation.

Gallego argued that consolidation among European carriers could improve operational efficiency, pointing to the fragmentation among smaller flag carriers like TAP Air Portugal as an example of inefficiency. Nonetheless, critics caution that consolidation, as experienced in the United States, often results in reduced competition and higher airfares for consumers.

As Castlelake's deadline approaches and IAG’s interest remains tentative due to regulatory concerns, easyJet’s future ownership landscape remains uncertain amid broader debates over the European airline industry's structure and competitiveness.