IAG agrees to buy BMI; warns job losses likely
22.12.11
British Airways owner IAG has agreed a binding deal to buy BMI from Lufthansa for £172.5m. It has warned the deal could lead to job losses. IAG, which also owns Spanish airline Iberia, will gain 56 pairs of takeoff and landing slots at Heathrow airport as a result of the deal. The airlines hope the takeover, which is subject to clearance by competition bodies, will be completed in the first three months of next year.
BMI, which is based in Castle Donington in Leicestershire, operates flights to Europe, the Middle East and Africa. It has 8.5% of the landing slots at Heathrow, which are seen as the main attraction of a purchase. BMI also operates the bmibaby and bmi regional brands, which have no landing slots in London airports. Lufthansa has the option to sell both bmibaby and bmi regional before the deal with IAG is completed. If Lufthansa does not sell bmibaby before the deal is completed, IAG said the price it would pay would be subject to a ‘significant’ reduction.
BMI employs more than 3,600 staff, but reported a £153m loss in the year to 2010. IAG chief executive Willie Walsh said: ‘Given the scale of BMI's losses, there is an urgent need to restructure the business. Unfortunately, this will mean some job losses but we will secure a significant number of high quality jobs here in the UK and create similar new jobs in the future.' Mr Walsh said the restructuring would be carried out over a three year period.
The deal is opposed by BA's rival Virgin Atlantic, who had also hoped to buy BMI. In a statement, Sir Richard Branson, chairman of Virgin Group, said: ‘BA is already dominant at Heathrow and their removal of BMI just tightens their stranglehold at the world's busiest international airport. We will fight this monopoly every step of the way as we think it is bad for the consumer, bad for the industry and bad for Britain.’ The airline also confirmed it was no longer in talks with Lufthansa.
But Mr Walsh insisted the deal was good news for the UK and for consumers. He said: 'Buying bmi's mainline business gives IAG a unique opportunity to grow at Heathrow, one of our key hub airports. Using the slot portfolio more efficiently provides the option to launch new long haul routes to key trading nations while supporting our broad domestic and short haul network.'
'This deal is good news for the UK as we will maintain a comprehensive domestic schedule including Belfast. Our plans to expand our long haul network would guarantee growth by making Britain better able to compete on a global scale. It will also help maximise Heathrow's position as a world class hub airport. Customers will benefit from access to new destinations, more convenient schedules, enhanced frequent flyer benefits and greater investment than had been possible for loss-making bmi.'
IAG said it intends to finance the purchase from its own funds, with £60 million of the purchase price paid in four installments to Lufthansa pre-completion. This amount will be secured by Heathrow slots.
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