BA and Virgin in tug-of-war over BMI

Why would two rivals tussle over a loss-making airline? It's the slots, stupid...

by Emma Haslett
Last Updated: 22 Dec 2011
Airline BMI British Midland has become the subject of a bizarre aerial love triangle featuring, one one hand, British Airways owner International Airlines Group, and on the other, Virgin Atlantic. What makes it so strange is that the airline’s current owner, Lufthansa, couldn’t be more desperate to divest itself of the airline, after it lost €154m (£132.8m) in the first nine months of the year. But while its suitors are squabbling over the ins and outs of a potential deal like a couple of love-struck puppies, we’re not convinced their intentions are entirely honourable…

IAG has already insisted that it’s in the final throes of negotiations with Lufthansa, saying it’s hoping to have something thrashed out by the first quarter of next year. ‘The sale and closing deal remain subject to conditions including a binding purchase agreement, further due diligence and regulatory clearances,’ said a spokesperson, confidently. Virgin, on the other hand, seems to think it’s the one that’s clinched the deal. ‘We can confirm that we have made a bid for BMI and are working with Lufthansa on the next stage of the purchase,’ it said. So what happens next is anyone’s guess. It feels a bit like the corporate equivalent of gazumping.

Why such a flurry of excitement over a loss-making airline, then – which has a huge pension deficit to boot? The answer lies in the landing slots it holds at Heathrow, secured by its wily founder Sir Michael Bishop back in the day. If IAG (currently comprised of BA and Iberia) got its paws on BMI, it would give it an extra 8% of Heathrow’s slots, pushing its total to over 50%. Virgin, of course, thinks this is all terribly unfair: it’s already insisted that regulators look into the competition implications of an acquisition by IAG.

But whichever finds itself linked in holy union to BMI, it’s not clear what will become of the airline’s 3,500 employees. IAG is already being deliberately vague on the issue: today, CEO Willie Walsh said it’s ‘too early’ to say whether it will lead to redundancies. Which is management code speak for ‘there will (probably) be blood’.

 Still: at least things for IAG are going well. It reported profits that rose from €63m in the first nine months of last year, to €355m now. Although Walsh added that fuel costs had risen by 28.5%, to €263m. A bill that will only rise if it gets its hands on BMI…

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