UPDATE 2-Finnair, Flybe to buy Finnish regional carrier
* Finnair, Flybe create Flybe Nordic JV
* Flybe to own 60 pct, Finnair to own 40 pct
* Flybe Nordic eyes Baltic expansion
* Flybe shares rise 7 pct, Finnair up 3 pct (Adds Flybe CEO, analyst comment, shares, details)
By Rhys Jones and Ritsuko Ando
LONDON/HELSINKI July 1 (Reuters) - Flybe , Europe's largest regional airline, and Finnair have together agreed to buy Finland's biggest domestic carrier Finnish Commuter Airlines (FCA) for 25 million euros ($35.5 million) to expand in the Baltic market.
Flybe, which has also agreed to buy 46 percent of Finnish Aircraft Maintenance, will pay 12 million euros for a 60 percent stake in the joint venture -- to be known as Flybe Nordic -- while Finland's flag carrier will pay 13 million euros for 40 percent.
The British carrier, which raised around 60 million pounds through a float in London late last year, said its total investment would be 23.6 million euros including net cash and loan repayments.
"We're going after the whole Baltic regional market and want to replicate in the Baltic regional market what we did in the UK -- linking secondary and primary cities," Flybe Chief Executive Jim French told Reuters.
"Part of the reason for the IPO was to raise funds to invest into Europe and in five years I see the European side of the business being bigger than the UK business."
Flybe, which operates 69 aircraft from 14 UK airport bases, on Thursday posted a full-year loss of 4.3 million pounds on Thursday, hit by the impact of last year's Icelandic volcanic eruption, severe winter weather and rising fuel costs.
"We think boosting the Finnair Helsinki hub is a good strategic move ... the challenge for Flybe will be keeping out of the way of he Nordic low cost challenger Norwegian," said Royal Bank of Scotland analyst Andrew Lobbenberg.
Flybe shares in London were up 7 percent by 0835 GMT, while Finnair shares in Helsinki were 3 percent higher.
As part of the deal Finnair will buy FCA's aircraft at market price and lease them back to the joint venture. Its investment will be around 104 million euros including the fleet's debt liabilities of 70 million euros.
Flybe's French said he was in discussions about "the replication this type of deal in other places", with the ultimate aim to "join a few satellites in continental Europe and link all the dots so Flybe goes right across Europe as Ryanair and easyJet have. ($1 = 0.705 Euros) (Editing by Hans-Juergen Peters)