BA Bags Lufthansa’s BMI, Heathrow Slots in $271 Million Deal
BA Bags Lufthansa’s BMI, Heathrow Slots in $271 Million De
Chris Ratcliffe/Bloomberg
A British Airways aircraft passes a BMI passenger jet at Heathrow airport in London U.K. on Dec. 22, 2011. British Airways parent IAG sealed the purchase of Deutsche Lufthansa AG's BMI unit with a 172.5 million-pound ($271 million) bid that edges out Virgin Atlantic Airways Ltd. and boosts its position at London Heathrow airport.
A British Airways aircraft passes a BMI passenger jet at Heathrow airport in London U.K. on Dec. 22, 2011. British Airways parent IAG sealed the purchase of Deutsche Lufthansa AG's BMI unit with a 172.5 million-pound ($271 million) bid that edges out Virgin Atlantic Airways Ltd. and boosts its position at London Heathrow airport. Photographer: Chris Ratcliffe/Bloomberg
Dec. 22 (Bloomberg) -- Willie Walsh, chief executive officer of IAG, the owner of British Airways and Spain's Iberia, talks about the agreement to buy Deutsche Lufthansa AG's BMI unit in the U.K. for 172.5 million pounds ($270.5 million). He speaks from London with Owen Thomas on Bloomberg Television's "The Pulse." (Source: Bloomberg)
International Airlines Group's CEO Willie Walsh
Jason Alden/Bloomberg
Willie Walsh, chief executive officer of International Airlines Group.
Willie Walsh, chief executive officer of International Airlines Group. Photographer: Jason Alden/Bloomberg
IAG to Buy Lufthansa’s BMI to Add Heathrow Flights
Simon Dawson/Bloomberg
Lufthansa, left, and British Midlands International (BMI) aircraft stand at Heathrow airport in London. IAG will use the purchase of BMI to expand its own long-haul network, particularly on routes to Asia and Latin America.
Lufthansa, left, and British Midlands International (BMI) aircraft stand at Heathrow airport in London. IAG will use the purchase of BMI to expand its own long-haul network, particularly on routes to Asia and Latin America. Photographer: Simon Dawson/Bloomberg
BA Bags Lufthansa’s BMI, Heathrow Slots in $271 Million Deal
Chris Ratcliffe/Bloomberg
BMI presented a “unique” opportunity that IAG couldn’t pass up, even amid tough economic conditions, Chief Executive Officer Willie Walsh said in an interview.
BMI presented a “unique” opportunity that IAG couldn’t pass up, even amid tough economic conditions, Chief Executive Officer Willie Walsh said in an interview. Photographer: Chris Ratcliffe/Bloomberg
BA Bags Lufthansa’s BMI, Heathrow Slots in $271 Million Deal
Chris Ratcliffe/Bloomberg
British Airways will have the planes available to best exploit some of BMI’s slots by switching them to inter-continental routes as it takes delivery of 12 Airbus SAS A380 superjumbos and 24 Boeing Co. 787 Dreamliners starting in 2013.
British Airways will have the planes available to best exploit some of BMI’s slots by switching them to inter-continental routes as it takes delivery of 12 Airbus SAS A380 superjumbos and 24 Boeing Co. 787 Dreamliners starting in 2013. Photographer: Chris Ratcliffe/Bloomberg
British Airways parent IAG sealed the purchase of Deutsche Lufthansa AG’s BMI unit with a 172.5 million-pound ($271 million) bid that edges out Virgin Atlantic Airways Ltd. and boosts its position at London Heathrow airport.
The deal brings as many as 56 daily slot pairs at capacity- limited Heathrow, Europe’s busiest hub, which will be used to add routes to emerging markets, London-based IAG, formed from a merger of BA and Iberia last January, said today in a statement.
BMI presented a “unique” opportunity that IAG couldn’t pass up, even amid tough economic conditions, Chief Executive Officer Willie Walsh said in an interview. Germany’s Lufthansa opted to sell after the unit racked up 223 million euros ($291 million) of operating losses following a forced takeover in 2009.
“The deal bolsters IAG’s market share at a very crowded and competitive airport,” said Francisco Salvador, a strategist at FGA/MG Valores in Madrid. “IAG will have to find economies of scale and slash costs, but they know very well how to do that as the company was itself formed through a restructuring process.”
IAG, as International Consolidated Airlines Group SA is known, rose as much as 3.1 percent and was trading 3 percent higher at 149.40 pence as of 12:41 p.m. in London.
Cologne-based Lufthansa advanced as much as 2.4 percent and was later priced up 1.3 percent at 9.14 euros in Frankfurt.
‘Painful Break’
“It’s better to make a painful break than draw out the agony,” said Jochen Rothenbacher, an analyst at Equinet AG in Frankfurt with an “accumulate” recommendation on Lufthansa shares. “They’ve gotten rid of one of their biggest problems.”
BMI holds 8.5 percent of takeoff and landing slots at Heathrow, which operates at 99 percent of capacity and won’t be allowed to add a third runway, according to U.K. Prime Minister David Cameron. BA and Iberia together control 44.5 percent.
IAG is better positioned than Lufthansa to squeeze savings from BMI, Salvador said.
Walsh told Bloomberg Television that there’s an urgent need to restructure BMI, and that “regrettably that means there will be some job losses.” On shorter routes, which BMI traditionally serves, the brand may survive under the IAG umbrella or be merged into BA, he said. It won’t be used for longer ones.
Asian Targets
British Airways will have the planes available to best exploit some of BMI’s slots by switching them to inter- continental routes as it takes delivery of 12 Airbus SAS A380 superjumbos and 24 Boeing Co. 787 Dreamliners starting in 2013.
Today’s deal may allow IAG to boost services to China and offer new destinations including Korea, Vietnam and Indonesia, Walsh said on a conference call.
U.K. billionaire Richard Branson’s Virgin Atlantic, which made a rival bid for BMI, will ask competition authorities to stop the transaction, saying its completion would “tilt the competitive landscape dangerously” toward BA, it said today.
“BA is already dominant at Heathrow and their removal of BMI just tightens their stranglehold at the world’s busiest international airport,” Branson said in a statement. “We will fight this monopoly every step of the way as we think it is bad for the consumer, bad for the industry and bad for Britain.”
Ryanair Holdings Plc (RYA) doesn’t “see any difficulty” with the acquisition, which it called a logical step in consolidation of European airlines, the carrier said in a statement.
Walsh said in the interview that competition policy is not dictated by Virgin or its owner, and that IAG will work with regulators to clear any antitrust hurdles. The company will still control a smaller proportion of slots at Heathrow than its rivals do at their main bases, the CEO has said previously.
Takeover Costs
The acquisition of Castle Donington, England-based BMI was forced on Lufthansa when founder Michael Bishop exercised an option to dispose of his stake. Since then, BMI has cut 800 jobs and 10 planes in an effort to stem losses and attract buyers.
Lufthansa spent about 350 million pounds purchasing BMI, including an initial stake bought in 1999, through the deal forced by Bishop as airline stocks fell during the global slump and the acquisition of a minority holding owned by SAS AB.
There will be a “significant price reduction” if Lufthansa fails to sell the BMI Regional and low-cost bmibaby units before the close of the deal, which should happen toward the end of the first quarter, IAG said today. Lufthansa said Oct. 28 it was in “advanced” talks to dispose of BMI Regional to investors associated with that part of the airline industry.
IAG said the BMI purchase will help boost 2015’s estimated operating profit of 1.5 billion euros by more than 100 million euros, and that it will be accretive to earnings per share by 2014 at the latest.
“We believe we can turn this around within two years,” Walsh said. “It’s going to require some effort on our part and some investment on our part, but we’re confident that we have the skills and capability to do that.”
Restructuring costs will be spread over three years and will be “significantly lower” than BMI’s current annual losses, said IAG, which will finance the acquisition from its own funds.
The Anglo-Spanish company was advised on the deal by Barclays Plc. (BARC) Lufthansa declined to identify its advisers.
To contact the reporters on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net; Manuel Baigorri in Madrid at mbaigorri@bloomberg.net.
To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Kenneth Wong in Berlin at kwong11@bloomberg.net.
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