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Your support makes all the difference.The owner of British Airways said today it had agreed to buy troubled airline BMI in a move which will increase its hold on the take off and landing slots at Heathrow airport.
International Airlines Group (IAG), which also owns Spanish Carrier Iberia, has bought the airline from German carrier Lufthansa in a deal which has infuriated rivals such as Sir Richard Branson's Virgin Atlantic.
IAG would own more than half of the landing slots at the UK's busiest airport if the deal is completed.
Virgin, which today said it had also made a bid for BMI, said: "British Airways' hold over Heathrow is already too dominant and we are very concerned - as the competition authorities should also be - that BA's purchase of BMI would be disastrous for consumer choice and competition."
IAG said the deal is still subject to a binding purchase agreement and regulatory clearance but it envisages a deal could be signed in the first quarter of 2012.
The proposed deal came as IAG forecast it would double operating profits this year despite reporting a 34% fall in the third quarter to 351 million euro (£305 million).
Chief executive Willie Walsh said acquiring BMI would be great for IAG and the British economy but admitted the group did not have an exclusive deal with Lufthansa and also had yet to complete required accounting checks on BMI.
He did not see any regulatory issues arising, even though IAG would control 53% of takeover and landing slots at Heathrow if it completes the deal.
That percentage was still lower than its rival competitors in Europe at their key airports, he claimed, adding that Lufthansa would not have progressed discussions if it was not confident a takeover would be allowed.
He said IAG would use BMI to expand its long-haul network, especially into the fast-growing economies of Asia and Latin America.
Third-quarter profits were squeezed as fuel costs rose by 23.7% in the three months to September and by 28.5% to 3.75 billion euro (£3.26 billion) over the whole of 2011 so far. Revenues in the latest quarter rose by 2.2% to 4.49 billion euro (£3.9 billion).
Mr Walsh said the additional 263 million euro (£229 million) cost of fuel would have been even higher without hedging and favourable currency movements.
The cost of fuel was the biggest challenge facing the industry in the short and medium term, he added.
The carrier also saw some softening in premium traffic in October due to the economic uncertainty in the eurozone and elsewhere.
Economy traffic was also weaker than last year, especially in Spain, and the group will cut capacity if the downturn is sustained, IAG said.
Lufthansa decided to put BMI up for sale after attempts to turn around the loss-making airline proved fruitless.
It took full control two years ago after it bought out BMI chairman Lord Bishop's stake for about £220 million.
But the rising cost of aviation fuel and the recent uprisings in North Africa and the Middle East saw the airline's losses widen to 154 million euros (£134 million) in the first nine months of this year.
BMI group, which employs 3,500 staff, also has a no-frills subsidiary, BMI Baby, and a regional division as well as an HQ at Donington Hall near Derby.
IAG said its primary interest is the core BMI business and the Heathrow slots and gave no indication about the other parts of the business or staff.
Analysts suggest IAG may be prepared to offload some slots to Virgin to ease some of the regulatory concerns. Virgin currently has 3% to 4% of capacity at Heathrow.
Geoff van Klaveren, a director at broker Deutsche Bank, said the deal could be transformational for IAG.
"It boosts their slots at Heathrow to 54% share from 45%. Given that no new runways are likely to be built in the South East of England in next 10 years, this a crucial strategic move."
He estimates BMI's 57 slots at Heathrow are worth between £456 million and £570 million.
Dr Ashley Steel, KPMG's global head of transport, added: "IAG's agreement in principle to buy Lufthansa-owned BMI is excellent news for UK business and the economy.
"Heathrow is lagging its competitors in Frankfurt, where a fourth runway has just opened, and Paris, on availability of slots for routes to growing Asian and Latin American cities."
However, investors were not convinced by the deal as IAG shares fell by 4%.
PA
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