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Virgin Atlantic Interested in Combining With Lufthansa’s BMI

Richard Branson’s Virgin Atlantic Airways Ltd. joined chief competitor British Airways in saying it’s interested in a deal with BMI, the U.K. carrier that Deutsche Lufthansa AG has indicated may be sold.

“We continue to have a close interest in a combination with BMI,” Virgin Atlantic said today in a statement, adding that it currently works with the carrier at London’s Heathrow airport, where the two are among top slot holders after British Airways.

Lufthansa said this month it has hired a bank to help determine whether to sell BMI or persist with a turnaround plan for a company acquired under duress in 2009 after then-owner Michael Bishop exercised a put option as airline values fell during the global slump. British Airways immediately restated its long-standing interest in buying the business to gain scarce operating slots at Heathrow, Europe’s busiest passenger hub.

Exposure to markets in the Middle East and North Africa, where traffic has been crimped by political unrest, is limiting the impact of BMI’s recovery strategy, according to Stephen Furlong, a Davy Stockbrokers analyst in Dublin. The unit posted a profit in the third quarter of 2010 but had a 120 million-euro ($163 million) operating loss in the first half of this year.

Previous Approaches

International Consolidated Airlines Group SA, the owner of British Airways and Spain’s Iberia, “would be interested’ in purchasing Castle Donington, England-based BMI should it be offered for sale, Chief of Staff Julia Simpson said Sept. 2.

Comments in June from IAG Chief Executive Officer Willie Walsh stating that he has been keen on BMI “for several years now and that interest hasn’t change” still stand, she added.

At Virgin, Branson has been pursuing a merger with BMI for more than a decade, having explored the purchase of an initial stake bought by Lufthansa in 1999. Virgin CEO Steve Ridgway said in 2005 a tie-up was “the great undone deal in aviation,” with the combination of his company’s long-haul routes with BMI’s short- and mid-distance network giving the transaction “logic.”

More recently, in December 2008, Virgin said it was in talks over BMI in the run up to Lufthansa being compelled to take control, while in August 2009 it hired Goldman Sachs Group Inc. to examine a combination as the German company explored options for offloading the unit after assuming ownership.

Virgin Atlantic has itself been looking at options for a strategic investor after Branson ordered a review of the carrier’s independence when antitrust regulators allowed BA, Spain’s Iberia and AMR Corp.’s American Airlines to create a joint business on the key North Atlantic market.

Virgin Atlantic, which is closely held with Singapore Airlines Ltd. holding a minority stake, holds about 3 percent of take-off and landing positions at Heathrow. BA and Iberia, which the U.K. carrier bought to form IAG, hold about 43 percent and BMI controls about 10 percent, according to Davy’s Furlong.

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