Good Morning! As you wake up to Lufthansa’s Sale of BMI to IAG, here are some of the key points:
As reported by Bloomberg, it appears that IAG, parent of British Airways and Iberia has reached an agreement to purchase BMI from Lufthansa.
I was hoping that this would not be the case as I had stated in my previous post on the topic but it is what it is and I have to admit my prediction was wrong.
The deal gives IAG/British Airways an additional 56 Landing Spots at Heathrow which will allow it to expand it base and for all intensive purposes continue to block out any substantial Star Alliance presence in the UK.
What has not yet been disclosed (as of 3:30a EST) is the fate of Diamond Club, BMI’s Frequent Flyer Program. I suspect that we will hear in short order what the decision will be with Diamond Club. My opinion on this is that if you have Diamond Club miles, it may behoove you to spend them before they are potentially absorbed into IAG’s Avios Program.
IAG has indicated that it will do all it can to keep as many BMI employees as possible as it absorbs the carrier but has stated that job losses may result as part of the acquisition.
Of course, the deal is subject to regulatory approval, but IAG indicates that it has a very high degree of confidence that gaining the approval will not be difficult since other rivals have proportionately more slots at their respect hubs than IAG/British Airways would have at Heathrow. The deal is expected to close in the 1st Quarter of 2012.
The terms of the deal as reported in the Bloomberg article:
British Airways parent IAG agreed to buy Deutsche Lufthansa AG (LHA)’s BMI unit in the U.K. for 172.5 million pounds ($270.5 million), fending off a counterbid from Virgin Atlantic Airways Ltd.
Excerpt from Lufthansa’s Press Release:
*Sale of bmi for a gross purchase price of GBP 172.5 million (approx. EUR 207 million), subject to certain reductions
*Net of total potential reductions, the net purchase price expected to be clearly negative; however, the transaction is expected to have amortized for Lufthansa after around one year
*As part of the agreement, a British holding company of Lufthansa, is to take on bmi’s defined benefit pension scheme
*Deal remains subject in particular to competition clearance
*bmi will be accounted for as “asset held for sale / discontinued operations” for Financial Year 2011
*Closing of the transaction is aimed for the first quarter of 2012
*Transaction offers sustainable future prospects for bmi
*Lufthansa aligns airline portfolio to strategic fit and benefits from stronger earnings position
I’ll have more on this developing story as more news comes out later today.