Virgin ready to battle BA in bidding war for BMI

THE prospect of a bid battle over BMI British Midland gathered pace yesterday with both British Airways’ parent International Airlines Group (IAG) and Virgin Atlantic linked to approaches to buy the loss-making business.

IAG is thought to have tabled a proposal to buy the Lufthansa-owned UK airline whose regional operation is based in Aberdeen.

BMI British Midland is also a major player at Heathrow airport and a deal with IAG – formed when BA merged with Spanish carrier Iberia – would see its larger rival owning more than half of the take-off and landing slots at the London site if an acquisition went ahead.

But within hours of reports emerging of the approach, rival Virgin Atlantic reiterated its own interest in BMI and warned against the implications of an IAG bid on the air travel market.

A Virgin spokesman said: “We are in ongoing discussions with BMI and remain very interested in acquiring the business. We are also talking to regulators about the competition ramifications of an IAG purchase of BMI due to its dominant position at London Heathrow.

“It’s important regulators take note of the profound impact a British Airways-BMI tie up would have on the whole of the London Heathrow market,” the spokesman added.

Lufthansa and IAG would not comment on the developments although earlier this week IAG chief executive Willie Walsh had said that BMI and Portuguese airline TAP were the “only two we’re actively interested at this stage” when he was asked about consolidation in the industry.

Walsh also said IAG was “always interested” in Heathrow slots and warned that smaller airlines were “going to find it increasingly difficult as consolidation takes place”.

IAG had bought six pairs of take-off and landing slots from BMI last month.

As Heathrow is operating at full capacity and a third runway has been ruled out, British Airways is unable to expand its operations at the airport without acquiring more slots from other airlines.

Citigroup analyst Andrew Light has estimated that BMI’s Heathrow slots are worth some £400 million.

Last month it was revealed that Lufthansa was looking at putting BMI up for sale after mounting losses.

It lost £105m in the first half of the year – equivalent to £38 for every passenger it carried.

The group is believed to have appointed investment bank Morgan Stanley to explore options, including a full sale or break-up.

A break up could involve a sale of BMI’s no-frills subsidiary, bmibaby, BMI Regional and possibly the group’s head offices at Donington Hall near Derby.

BMI’s main airline is based exclusively at Heathrow, whereas bmibaby flies from several locations, including Edinburgh, Glasgow, Cardiff, East Midlands and Manchester.

In an interview last month, Mika Vehvilainen, chief executive of Finnish airline Finnair, predicted another wave of consolidation in the European airline industry.

In July, Flybe, led by Scots-born chief executive Jim French, launched its long-heralded expansion into Europe through a joint venture with Finnair.

The UK carrier bought Finnish Commuter Airlines (FCA) in partnership with Finnair in a £22.5m deal that will see Flybe run the airline and take a 60 per cent stake.

FCA, which was privately owned, is Finland’s largest domestic airline by number of flights, flying some 900,000 passengers per year.

Shares in IAG closed down 0.2p at 155.5p yesterday, valuing the company at £3.1 billion.