Lufthansa-BMI move threatens Scots links

Published on Wednesday 29 October 2008 20:46

THE future of BMI's Scottish operations has been thrown into doubt after Lufthansa confirmed its widely anticipated takeover of the airline in a £318 million deal.

News of the move triggered overtures from Virgin Atlantic to secure a tie-up with the expanded German carrier to take on the planned merger of British Airways and American Airlines.

Details of the deal, published yesterday, showed that Lufthansa will increase its holding in Bmi from 30 per cent to 80 per cent by exercising a long-standing option to buy chairman Sir Michael Bishop's stake. The deal is not expected to be concluded until 12 January.

Last night analysts said the move could result in flights on Bmi's Scotland-Heathrow routes reduced to free up valuable landing slots at Heathrow for more lucrative longer-haul services.

They also suggested Aberdeen-based Bmi Regional, which operates non-London UK and European routes, could be sold off, perhaps to Flybe. A similar fate may await Bmi Baby, its no-frills arm, because neither fits with the full-service Lufthansa brand.

Nigel Turner, BMI's chief executive, pledged two weeks ago that "the airlines within the BMI group remain absolutely committed to services to and from Scotland" and "BMI's loyalty to the Scottish market remains undiminished".

The comments, in a letter to Alex Salmond, the First Minister, followed speculation that rival BA might further reduce its remaining Scotland-London operation after confirming the closure of a crew base at Glasgow airport.

However, analysts said the Lufthansa move could change everything.

John Strickland, of aviation experts JLS Consulting, said: "I do not see BMI Regional and BMI Baby being a natural fit with Lufthansa, and would not be surprised if Flybe were interested, since they bought BA's equivalent, BA Connect.

"On the Scotland-London routes, Lufthansa will be sensitive, but will look at the service frequency. The routes are becoming more marginal because of competition from EasyJet and Ryanair, and improved train services."

Lufthansa yesterday lowered its full-year operating profit forecast from 1.1bn to 0.9bn because of the economic slowdown and higher fuel costs.

Steve Ridgway, chief executive of Virgin Atlantic, said: "Everyone has speculated that it would make sense for Virgin Atlantic and BMI to combine their long-haul and short-haul networks."

&#149 Danish airline Sterling, which operated summer flights from Edinburgh to Copenhagen and Stockholm, yesterday ceased flights and filed for bankruptcy.