Lufthansa Sale of BMI Announcement May Be Imminent

by | Nov 3, 2011 | Uncategorized | 0 comments

Looks like Lufhtansa is moving quickly to complete their sale of BMI. It will remain to be seen what will happen with flyers who are members of BMI’s Diamond Club frequent flyer program. Options may include Lufhtansa absorbing it into its Miles and More program or transferring it to IAG and subsequentally British Airways, a subsidiary of IAG. A frequent flyer plan is generally a liability on the books of a carrier, so in my opinion its unlikely that Lufthansa would absorb Diamond Club and its legacy members. Although I would love for them to do it since my Gold Status with BMI could transfer to Senator Status with Lufthansa. I think the more likely outcome may be British Airways absorbing Diamond Club along with the rest of the organization. I would love to be wrong!!!

Below is an excerpt from the article published on Bloomberg this morning:

Deutsche Lufthansa AG (LHA) has reached a draft accord to sell its U.K.-based BMI unit to British Airways parent IAG and the carriers are engaged in final negotiations on the deal, two people with knowledge of the plan said today.
A memorandum of understanding on the sale of BMI’s mainline operations has been signed by the carriers and is likely to be disclosed when IAG announces earnings tomorrow, said the people, who declined to be identified because the talks are private.
Lufthansa has been seeking a buyer for BMI after failing to turn round an airline added under duress in 2009 when then-owner Michael Bishop exercised a put option. The German carrier said last week it was contemplating multiple bids while exploring “various disposals and strategic options” for the U.K. unit.
Buying BMI would bring access to the 8.5 percent of takeoff and landing slots that the carrier controls at London’s capacity constrained Heathrow airport, the busiest in Europe. British Airways is already the No. 1 operator there and added to its holdings with the purchase of six of BMI’s slots in September.
Lesser Evil
“It’s good news for Lufthansa as the loss-maker drops out of the equation and they don’t have the restructuring problem,” said analyst Nils Machemehl at BHF Bank in Frankfurt, who has a “market weight” rating on Lufthansa. “From a profit perspective it would be positive if it were given away for nothing, but I think the price will be higher through the Heathrow slots.”
BMI has no strategic role for the German company, and the advantage handed to IAG is a lesser evil than sustained losses, Machemehl said, adding that the buyer might have to surrender some Heathrow slots to satisfy antitrust regulators.
Lufthansa, Europe’s second-biggest airline, rose as much as 2.8 percent and was trading 2.3 percent higher at 10.08 euros as of 12:35 p.m. in Frankfurt. The Cologne-based company declined to comment on any communications about the disposal of BMI.
IAG, or International Consolidated Airlines Group SA, the European No. 2 formed in January from a merger of British Airways with Spain’s Iberia, advanced 1.9 percent and was later priced up 1.1 percent in London.
The company has no comment on issues relating to BMI, spokeswoman Lorena Monsalves said today. Chief Executive Officer Willie Walsh has previously expressed on interest in a takeover on numerous occasions spanning almost two years.
Regional Division
Castle Donington, England-based BMI said last week it was in “advanced” talks on the sale of its regional operation, a separate business based in Aberdeen, Scotland, to U.K. investors with experience in that part of the market. There’s no change to the status of that transaction, one of the people said today.
BMI had an operating loss of 154 million euros ($212 million) in the first nine months, widening from 90 million euros a year earlier, Lufthansa said Oct. 27, adding that it’s unlikely to match 2010’s full-year sales and earnings.
A deal to sell BMI to British Airways would come as a blow to U.K. billionaire Richard Branson’s Virgin Atlantic Airways Ltd., BA’s biggest long-haul rival at Heathrow. Virgin CEO Steve Ridgway said Oct. 11 the carrier was looking at a bid of its own after Branson had pursued a tie-up for more than a decade.
Lufthansa said in September it had hired a bank to help determine whether to sell BMI or persist with a turnaround plan. While the memorandum has been signed with IAG, talks haven’t been exclusive, though other candidates aren’t as seriously interested, one of the people said today.

Lufthansa To Enter Talks With IAG Group Regarding BMI Sale

by | Nov 2, 2011 | Uncategorized | 0 comments

I found this article on airwise.com, and to date its the most definitive information that I’ve seen regarding the potential sale of BMI by Lufthansa:

Dated 1 November, 2011:

Lufthansa is set to enter exclusive talks to sell loss-making carrier bmi by the end of the month, with arch rival IAG, the owner of British Airways and Iberia, seen as the front-runner, sources said on Tuesday.

“The price won’t be substantial, it’s mainly about cleaning Lufthansa’s balance sheet and getting rid of the debt,” one source close to the sales process said.

Bmi has been a millstone around Lufthansa’s neck and by putting it up for sale, the company has admitted efforts have stalled to turn around the unit, which reported losses of EUR€154 million (USD$214.8 million) for the first nine months of 2011.

Lufthansa finance chief Stephan Gemkow said at the group’s third-quarter results last week talks were going on with several interested parties and that a binding deal could be reached this year.

The source added there were a handful of bidders, including IAG and Virgin Atlantic.

While Lufthansa is seeking to sell bmi as a whole, another source close to the deal said the most likely outcome would be Lufthansa selling bmi’s coveted slots at Heathrow, Europe’s largest airport, to IAG.

IAG would then pass on some of those slots to Virgin to relieve competition concerns.

“Lufthansa will likely sell bmi’s slots for about GBP£300 million max and its stake in (air traffic manager) NATS and fetch about GBP£400 million in total, so just enough to recover from the losses accumulated since the bmi acquisition,” the person said.

With the Heathrow slots sold, smaller players such as Flybe or Eastern could then look to pick up bmi regional.

While some have queried whether Lufthansa would sell bmi to arch rival British Airways, thus strengthening the latter’s position at London’s Heathrow, one of the sources close to the deal said Lufthansa’s desire to be rid of bmi would come first.

“Lufthansa is losing patience and could finally surrender to selling to IAG. They really tried hard to avoid giving them such a strong presence at Heathrow.”

One airline industry specialist, who did not want to be named, said Lufthansa would also be keen to avoid bmi falling into the clutches of Gulf airline Etihad, which sources say is teaming up with Virgin for a bid.

“Lufthansa is doing everything in its power to keep the fast growing Gulf airlines at bay – why should they allow a main competitor to gain a foothold on Europe’s busiest airport in Heathrow,” he said.

Here’s the link directly to the airwise.com article:
http://news.airwise.com/story/view/1320164902.html