International Consolidated Airlines Group (IAG), the airline entity formed by the merger of British Airways (BA) and Iberia, has reached an agreement in principle to buy British Midland (BMI) from Deutsche Lufthansa. The sale and closing are subject to a binding purchase agreement, further due diligence and clearance by antitrust authorities. No purchase price was provided. The parties said they expect the purchase agreement to be signed in the coming weeks and the transaction should be completed in the first quarter 2012. The deal would strengthen BA’s dominance at its crucial Heathrow hub.
But that may not mean the IAG-BMI deal is cut in stone. British Airways’ rival, Virgin Atlantic Airlines, said also has been bidding for BMI. Reports say Virgin Atlantic is continuing talks with Lufthansa about BMI, even with the agreement in principle in place with IAG. BMI reportedly has roughly 10 percent of the slots at Heathrow. If the deal with IAG goes through, BA would have 53 percent of the Heathrow slots — a number that Virgin Atlantic says will be too dominant at the key hub.
Lufthansa reportedly had been trying to restructure BMI, which posted an operating loss of roughly $211.6 million for the first nine months of the year, but obviously it has decided to cut its losses and sell the carrier. IAG and BA Chief Executive Willie Walsh has reportedly said BMI is unsustainable in its current form and IAG will help improve its network by expanding access to BA and Iberia’s long-haul network to Asia and Latin America. IAG is currently the third-largest airline group in Europe after Air France-KLM and Lufthansa.
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