INTERNATIONAL AIRLINES Group has reached a provisional deal to buy Lufthansa’s UK subsidiary, BMI British Midland, beating Virgin Atlantic to the loss-making carrier’s valuable swathe of take-off and landing slots at Heathrow airport.
The purchase, which is subject to clearance from European competition authorities, was seen as key to growth at British Airways, the bigger of IAG’s two airlines, since Heathrow is running at near-full capacity.
IAG has little interest in two parts of BMI – budget carrier BMI Baby and the regional business – both of which will be offloaded by either Lufthansa or IAG.
IAG chief executive Willie Walsh would not go into details of his plans but told analysts yesterday that “the BMI of the future will look very different to the BMI of today”.
The move makes it less likely that IAG might bid for Aer Lingus to get its Heathrow landing slots.
Financial details of the BMI purchase were not disclosed, and will probably not be revealed before regulatory clearance of the deal.
Andrew Lobbenberg at RBS has put the fair value of BMI’s assets at £400 million (€465 million).
To clear regulatory hurdles, some of the Heathrow slots may have to be sold on to Virgin.
Virgin said yesterday it had made a bid for BMI and remained “committed to the acquisition”.
“British Airways’ hold over Heathrow is already too dominant and we are very concerned – as the competition authorities should also be – that BA’s purchase of BMI would be disastrous for consumer choice and competition,” it added.
Mr Walsh said he and his counterparts at Lufthansa were confident the deal could get regulatory approval.
Questions also remain over which company will take responsibility for BMI’s pension deficit, which Lufthansa last year put at about £180 million. Should IAG agree to pay it, it would dent the cash Lufthansa receives for BMI.
Analysts said the deal would be good for Lufthansa, and for IAG in the long term, though it brought short-term risks. – (Copyright The Financial Times Limited 2011)