April 17 (Bloomberg) -- Deutsche Lufthansa AG is struggling to offload discount airline BMIbaby, potentially reducing proceeds from the sale of its entire U.K. business to British Airways parent IAG.
German turnaround specialist Intro Aviation GmbH, which had expressed an interest in BMIbaby, has ended talks, Managing Director Peter Oncken said in a e-mail. Charter carrier ACL has also dropped plans to make a bid, said a person familiar with the matter who declined to be identified discussing private talks.
IAG, or International Consolidated Airlines Group SA, agreed in December to pay 172.5 million pounds ($274 million) for BMI, while negotiating a “significant” discount should Lufthansa fail to find a home for the no-frills operation. The acquisition won European Union clearance on March 30, and London-based IAG is aiming to complete it by April 20.
“BMIbaby is not a very attractive asset,” said Joe Gill, an analyst at Bloxham Stockbrokers in Dublin, who follows low-cost carriers. “It’s getting flame-grilled at the moment because the market in northern England is incredibly competitive.”
BMI said March 5 that two parties were in the running to take over its discount arm, one of them an EU-based airline group operating in several countries, the other a U.K.-based company. Both parties aimed to keep BMI’s bases, it said, adding that a deal would be signed with one “in the next few weeks.”
“Lufthansa rejected a non-binding offer from us, rendering further discussions redundant,” Oncken, who founded Intro with German retail entrepreneur Hans Rudolf Wohrl, said in an e-emailed response to questions, adding that his company could resume talks with IAG after the takeover.
Like Intro, Dublin-based ACL signed an agreement allowing it to examine BMIbaby’s books, but isn’t currently considering an approach, according to the person familiar with its plans. Calls to the company weren’t returned.
BMI spokeswoman Katherine Hill said talks remain “ongoing” with potential buyers for BMIbaby, which has its main base at East Midlands airport between the English cities of Derby and Nottingham, reiterating comments from British Airways last week. Claudia Lange, a spokeswoman for the German company, referred all enquiries to BMI.
Interest in BMIbaby has waned because of the terms on offer from Cologne-based Lufthansa, Europe’s second-biggest airline, which would have to pay for the low-cost unit to be taken off its hands, according to another person close to the talks.
BMIbaby competes with Ryanair Holdings Plc and closely-held Jet2.com at its main East Midlands base, and also overlaps with Ryanair, the region’s top discount airline, in Birmingham. Both rivals, together with carriers including EasyJet Plc, also have bases in cities as little as 50 miles to the north.
Ryanair, EasyJet, charter carrier Monarch Airlines and Flybe Group Plc, Britain’s biggest domestic operator, all said they’re not interested in bidding.
The discount carrier’s fleet of Boeing Co. 737 single-aisle jets is leased and the planes have an average age of 16 years, according to data from aviation consultant Ascend.
BMI is also continuing with efforts to sell its Aberdeen, Scotland-based Regional division before the deal with IAG is tied up, spokeswoman Hill said. The company said Feb. 1 that it had reached a deal to sell the unit to an unidentified U.K. buyer, though BMI Chief Executive Officer Wolfgang Prock-Schauer said last month in an e-mail to staff that the process had been delayed because the bidder had not met “funding requirements.”
British Airways said last week that it may cut 1,200 jobs at BMI, or 44 percent of the workforce, in the wake of the acquisition. Most of that reduction will be at the unit’s Castle Donington headquarters, close to East Midlands airport.
IAG spokeswoman Lorena Monsalves said by telephone that the company is still working toward a completion date of April 20.
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