If a deal goes ahead, the company would be a major player in Europe, rivalling no frills airline Ryanair and posing a greater threat to British Airways.

It would create a substantial low-cost airline in Europe

3i spokeswoman

Easyjet has confirmed that talks have been going on for some time and has said negotiations are at an advanced stage and are continuing.

The company said it was forced to make a statement to the London Stock Exchange when it became aware that news of the negotiations had been leaked.

Easyjet approach

The statement was made in consultation with Go and 3i, a venture capital group that owns 43% of Go.

Easyjet said it had previously indicated that it would actively consider all possible opportunities for further expansion in the European short haul airline market.

Easyjet founder: Fierce critic of Go

And the company pointed out that since the terrorist atttacks of 11 September the opportunities to expand had increased.

A 3i spokeswoman said talks began after it and the board of Go were approached by Easyjet.

"Obviously it would create a substantial low-cost airline in Europe.

"If an offer is made we will consider that along with the board of Go and other shareholders," she said.

Stepping down

Easyjet was set up in 1995 by the flamboyant entrepreneur and shipping tycoon, Stelios Haji-Ioannou.

The airline's main base is at Luton airport, in Bedfordshire, but it also flies from Gatwick and Liverpool.

It has 31 aircraft flying to 45 destinations.

Mr Haji-Ioannou recently said he was stepping down as the airline's chairman to concentrate on expanding Easy Group into areas such as cinemas and low cost hotels.

Go boss Cassani led buyout from BA

Sir Colin Chandler was named as his replacement.

Go is based at Stansted airport, in Essex, and was set up by British Airways in 1998.

It has a 22-strong fleet of aircraft flying to 38 destinations.

Mr Haji-Ioannou has always been fiercely critical of his rival, which he felt was unfairly subsidised by BA.

He even used the launch of Go to win publicity for his own airline by booking seats and turning up wearing Easyjet's trademark orange uniform.

Intense as ever

In June last year, British Airways sold Go but the rivalry with Easyjet appeared to be as intense as ever.

Go chief executive, Barbara Cassani, was appointed by the then chief executive of British Airways, Bob Ayling.

Ms Cassani was recently named Veuve Clicquot businesswoman of the year.

Easyjet shares ended the day up nearly 5% at 472p with Ryanair up 2% at 382.5p.

BA shares were 4% lower at 229.5p.