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* Close to choosing country for new EU operation
* Will incur costs this year and next
* Annual pretax profit drops 28 pct to 495 mln pounds
* Sees ticket prices falling again this year
* Shares up 2.7 percent (Adds more on European licence, CEO comment, capacity)
By Victoria Bryan
BERLIN, Nov 15 (Reuters) - British airline easyJet said on Tuesday it will apply for a new licence to continueflying within the European Union if Britain leaves the bloc assterling's slide and fears of militant attacks hit profits.
Europe's second biggest no-frills airline behind Ryanair is among the most affected by the British vote to leavethe European Union because about 30 percent of its flights arebetween and within member states other than Britain.
To protect those rights, easyJet will set up an Air OperatorCertificate (AOC) in another EU country. While it is common forairlines to have more than one certificate they bring extra costand complexity, factors that budget carriers try to avoid.
The airline said in a presentation announcing its first fallin annual profit in six years that it was close to selecting alocation within the EU to make a formal application for thecertificate early next year.
The process will cost easyJet about 10 million pounds, splitbetween its current financial year to the end of September andthe next one.
The airline has about 100 planes and 3,300 crew membersbased in other EU member states and it said the costs wouldmainly stem from registering those planes in the new location ina process that could take 12-18 months.
"We are confident there will be an agreement between the UKand the EU but we can't be certain it will be reflective ofcurrent arrangements so that's why we need to establish an EUoperating company," Chief Executive Carolyn McCall said.
McCall said easyJet's headquarters would remain in Luton inBritain, where it operates 140 planes and employs 6,500 people.
Rivals are not as pressed to set up new arrangements to copewith Brexit. British Airways owner IAG is alreadyEU-owned and has various AOCs as does Germany's Lufthansa. Ireland's Ryanair is still considering whether itwould need to get a UK certificate in the event of Brexit.
PROFIT SLIDES
For the financial year that ended on Sept. 30, easyJetreported a 28 percent drop in annual pretax profit to 495million pounds ($618 million), the first decline since 2009 butat the upper end of a 490 million to 495 million forecast rangeit gave last month.
Shares in easyJet were 2.7 percent higher at 0930 GMT.
The airline has suffered as tourists shun places hit bymilitant attacks such as Egypt, Turkey, Paris and Nice, whilethe slide in the pound since Britain voted to leave the EuropeanUnion in June has taken its toll.
The fall in sterling knocked 88 million pounds off easyJet'sannual profit and the carrier said it expected a another hit of90 million in the 12 months to September 2017.
Despite the uncertainty caused by Brexit and currency swingsthat have also forced rivals operating in Britain such asRyanair and IAG to lower profit forecasts, easyJet said itexpected demand to remain strong.
However, European airlines are grappling with falling faresas they put more seats onto the market to try to take advantageof low fuel prices and win market share.
EasyJet said it planned to add 9 percent more seats to themarket in the current financial year and expects ticket pricesto fall about 5-9 percent in the first half following a 6percent drop in the 12 months to the end of September.
Ryanair warned in October that fare prices may drop bybetween 13 percent and 15 percent.
Analyst Robin Byde at Cantor Fitzgerald said the outlook foreasyJet was cautious but its plans to sell and leaseback 10aircraft could boost cash.
($1 = 0.8016 pounds) (Editing by David Clarke)
