Airline agreement
November 4, 2011
International Airlines Group (IAG), the owner of British Airways and Iberia, announced it has agreed to buy Lufthansa's UK-based subsidiary British Midland (bmi).
While no financial details were released, analysts believe the deal would cost IAG around 300 million pounds (350 million euros or $480 million). News of the deal came as IAG attributed an 8 percent drop in third quarter profit to increased fuel costs.
With international services to the Middle East and Africa as well as domestic services, bmi and its budget wing bmibaby currently operate at a loss for Lufthansa.
"It is clear that bmi in its current form is unsustainable, but we're confident we can make a success of it," IAG Chief Executive Willie Walsh told reporters.
"We will particularly look to expand BA's long-haul network ... it will allow us to connect Heathrow and the UK to emerging markets, particularly in Asia and Latin America."
Regulatory concerns
Bmi is currently the second largest carrier operating out of Europe's busiest airport, London Heathrow, accounting for 9 percent of take-offs and landings.
British Airways (BA) has 43.1 percent of these traffic slots. A deal with bmi would therefore give IAG more than 50 percent of the take-off and landing slots at Heathrow, leading rival carrier Virgin Atlantic, which also bid on bmi, to voice concerns about competition.
"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," a Virgin spokesman told the Associated Press.
Walsh said he was confident that regulatory officials would not object to the deal given other European precedents for airlines controlling a majority of airport slots. Lufthansa, for example, controls two thirds of slots in Frankfurt while Air France-KLM has 59 percent at Charles De Gaulle in Paris.
IAG's stock price at the London Stock Exchange was down on the news in the early afternoon at 168 pence, from its opening at 285.
Author: Stuart Tiffen (Reuters, AP)
Editor: Sam Edmonds