Lufthansa, IAG to enter exclusive bmi talks

LONDON/FRANKFURT (Reuters): German airline Lufthansa will enter exclusive talks to sell British carrier bmi to International Airlines Group in the next few days as rival bidder Virgin Atlantic struggles to raise funds, two people close to the deal said on Thursday.

“The process has accelerated and gained fresh momentum. The start of exclusive talks – most likely with British Airways parent IAG – is expected in the next few days,” a source close to the sale process told Reuters.

IAG, formed by the merger of British Airways and Spain’s Iberia, and UK carrier Virgin Atlantic are among a handful of bidders for loss-making bmi.

A source close to Virgin Atlantic told Reuters the airline had still not found a partner for a joint bid and that it could not afford to bid alone.

Bmi comprises three underperforming businesses: a traditional airline serving Europe, the Middle East and Africa; bmi regional, serving the UK; and low-cost unit bmibaby.

Bmi controls nine per cent of the coveted take-off and landing slots at London Heathrow, Europe’s busiest airport, which is now operating at full capacity after plans to build a third runway were scrapped.

While Lufthansa is seeking to sell bmi as a whole, sources close to the deal told Reuters on Monday that the most likely outcome would see Lufthansa selling bmi’s Heathrow slots to IAG for around 300 million pounds ($ 479 million).

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

With the Heathrow slots sold, UK budget airlines could look to buy low-cost carrier bmibaby, while Lufthansa is in talks with a UK investor group over the sale of the regional business.

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. Bmi reported a loss of 154 million euros ($212.5 million) for the first nine months of 2011.

IAG and Lufthansa both declined to comment when contacted by Reuters. Virgin was not immediately available for comment.