Walsh set to win battle for rival BMI

British Airways’ parent company, International Airlines Group (IAG), yesterday looked to have won the battle to buy BMI although rival Virgin Atlantic immediately raised competition concerns.

News of the deal – thought to be worth about £300 million – came as IAG reported a sharp fall in third-quarter profit due to higher fuel costs, underlining the need for airlines to seek growth through acquisition.

IAG, which also owns Iberia, said it had reached an agreement in principle with German carrier Lufthansa for the sale of loss-making UK-based BMI. A deal is likely to be completed in the first quarter of 2012, subject to clearance from competition authorities and due diligence.

The acquisition, which includes the low-cost operator bmibaby but not the Aberdeen-based regional operation which is expected to be bought by a UK investor group, will help IAG in its ambition to squeeze more growth from its capacity constrained Heathrow hub and expand services to emerging markets in Asia and Latin America.

IAG’s chief executive Willie Walsh, below, said: “It is clear that BMI in its current form is unsustainable but we’re confident we can make a success of it. “We will particularly look to expand BA’s long-haul network. It will allow us to connect Heathrow and the UK to emerging markets, particularly in Asia and Latin America.”

Walsh, who would not disclose any financial details about the agreement, added that IAG did not yet have exclusivity on a deal but claimed the group’s offer was more attractive than others Lufthansa had received.

Rival UK carrier Virgin Atlantic said it had also made a bid for BMI and was still “working with Lufthansa”. It also warned that “consumers will pay the price” if IAG was successful.

A Lufthansa spokesman said he was “confident the planned transaction with IAG will be successful” because IAG had offered “the most attractive prospect for the future of BMI”.

Walsh also said he was confident the deal would be cleared by regulators because IAG’s holding at Heathrow is small compared with rivals at other European hubs.

“Regulatory rules are not set by Richard Branson – they are set by competent authorities,” said Walsh.

Following the news, bookmaker Paddy Power started to take bets on which will be the next airline to fall into the hands of IAG with Chilean operator LAN Airlines favourite at 5/1 and Ireland’s Aer Lingus at 7/1. IAG’s fuel bill rose by about 25 per cent in the third quarter of the year to €1.39 billion (£1.2bn) and weak demand at Spain’s Iberia offset strong trade at British Airways.

Underlying profit before tax fell by 34.4 per cent to €316m although revenues rose by 2.2 per cent to €4.49bn. Shares in IAG closed down 6.8 per cent, or 11.5p, at 156.9p, valuing the group at £2.9bn.