Nov. 3 (Bloomberg) -- Deutsche Lufthansa AG has reached a
draft accord to sell its U.K.-based BMI unit to British Airways
parent IAG and the carriers are engaged in final negotiations on
the deal, two people with knowledge of the plan said today.
A memorandum of understanding on the sale of BMI’s mainline
operations has been signed by the carriers and is likely to be
disclosed when IAG announces earnings tomorrow, said the people,
who declined to be identified because the talks are private.
Lufthansa has been seeking a buyer for BMI after failing to
turn round an airline added under duress in 2009 when then-owner
Michael Bishop exercised a put option. The German carrier said
last week it was contemplating multiple bids while exploring
“various disposals and strategic options” for the U.K. unit.
Buying BMI would bring access to the 8.5 percent of takeoff
and landing slots that the carrier controls at London’s capacity
constrained Heathrow airport, the busiest in Europe. British
Airways is already the No. 1 operator there and added to its
holdings with the purchase of six of BMI’s slots in September.
Lesser Evil
“It’s good news for Lufthansa as the loss-maker drops out
of the equation and they don’t have the restructuring problem,”
said analyst Nils Machemehl at BHF Bank in Frankfurt, who has a
“market weight” rating on Lufthansa. “From a profit perspective
it would be positive if it were given away for nothing, but I
think the price will be higher through the Heathrow slots.”
BMI has no strategic role for the German company, and the
advantage handed to IAG is a lesser evil than sustained losses,
Machemehl said, adding that the buyer might have to surrender
some Heathrow slots to satisfy antitrust regulators.
Lufthansa, Europe’s second-biggest airline, rose as much as
2.8 percent and was trading 2.3 percent higher at 10.08 euros as
of 12:35 p.m. in Frankfurt. The Cologne-based company declined
to comment on any communications about the disposal of BMI.
IAG, or International Consolidated Airlines Group SA, the
European No. 2 formed in January from a merger of British
Airways with Spain’s Iberia, advanced 1.9 percent and was later
priced up 1.1 percent in London.
The company has no comment on issues relating to BMI,
spokeswoman Lorena Monsalves said today. Chief Executive Officer
Willie Walsh has previously expressed on interest in a takeover
on numerous occasions spanning almost two years.
Regional Division
Castle Donington, England-based BMI said last week it was
in “advanced” talks on the sale of its regional operation, a
separate business based in Aberdeen, Scotland, to U.K. investors
with experience in that part of the market. There’s no change to
the status of that transaction, one of the people said today.
BMI had an operating loss of 154 million euros ($212
million) in the first nine months, widening from 90 million
euros a year earlier, Lufthansa said Oct. 27, adding that it’s
unlikely to match 2010’s full-year sales and earnings.
A deal to sell BMI to British Airways would come as a blow
to U.K. billionaire Richard Branson’s Virgin Atlantic Airways
Ltd., BA’s biggest long-haul rival at Heathrow. Virgin CEO Steve
Ridgway said Oct. 11 the carrier was looking at a bid of its own
after Branson had pursued a tie-up for more than a decade.
Lufthansa said in September it had hired a bank to help
determine whether to sell BMI or persist with a turnaround plan.
While the memorandum has been signed with IAG, talks haven’t
been exclusive, though other candidates aren’t as seriously
interested, one of the people said today.