IAG reaches agreement with Lufthansa to acquire bmi

International Airlines Group (IAG) and Lufthansa Group (LH) reached an agreement for the sale of LH’s loss-making British Midland (bmi) to IAG. The purchase of bmi could increase IAG subsidiary British Airways' (BA) share of slots at London Heathrow (LHR) to 53%, although regulators most likely will require some slot divestments.

“The sale and closing of the deal remain subject to conditions, including a binding purchase agreement, further due diligence and regulatory clearances. It is envisaged that the purchase agreement will be signed in the coming weeks and the aim is for the transaction to be completed in the first quarter of 2012,” IAG and LH announced in a statement released Friday morning.

The companies did not detail whether the agreement is for the sale of the entirety of bmi, or just the carrier's mainline operation. Recently, bmi confirmed it was “in advanced discussion” to sell bmi regional to a UK-based investor group “previously associated with the regional business,” indicating its owner was negotiating to divest its loss-making UK subsidiary in parts. It is not clear what will happen with the company’s low-cost carrier, bmibaby.

Virgin Atlantic Airways (VS), which was also interested in acquiring bmi, said the deal announced Friday is anti-competitive. “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,” the airline said. “With the government limiting growth at London Heathrow, they cannot afford to turn a blind eye to the deterioration of competition that would result.”

Bmi reported a €154 million ($211.6 million) operating loss for the first nine months of 2011, deepened from a €90 million loss in the year-ago period, despite lower costs achieved by restructuring activities and the sale of six slots at LHR. Those slots were either already leased to other airlines or could not be used profitably by bmiRevenue declined 5.5% year-over-year to €658 million and passengers carried fell 7.4% to 4.5 million.

Source: ATW