IAG seals BMI deal to boost its position at Heathrow
Buyout may open company up to new emerging destinations
Published 23/12/2011 | 05:00
BRITISH Airways parent, IAG, sealed the purchase of Deutsche Lufthansa's BMI unit with a £172.5m (€208m) bid that edges out Virgin Atlantic Airways Ltd and boosts its position at London's 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 yesterday 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 €223m 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 is known, rose as much as 3.1pc and was trading 3pc higher at 149.40p (179.45c) as of 12.41pm yesterday in London.
Cologne-based Lufthansa advanced as much as 2.4pc and was later priced up 1.3pc at €9.14 in Frankfurt.
BMI holds 8.5pc of takeoff and landing slots at Heathrow, which operates at 99pc of capacity and won't be allowed to add a third runway, according to British Prime Minister David Cameron. BA and Iberia together control 44.5pc.
IAG is better positioned than Lufthansa to squeeze savings from BMI, Mr Salvador added.
Mr Walsh told Bloomberg Television that there was 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 might survive under the IAG umbrella or be merged into BA, he said.
Yesterday's deal may allow IAG to boost services to China and offer new destinations, including Korea, Vietnam and Indonesia, Mr Walsh added.
UK 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 yesterday.
"BA is already dominant at Heathrow and their removal of BMI just tightens their stranglehold at the world's busiest international airport," Mr Branson said. "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."
Mr Walsh said in the interview that competition policy was not dictated by Virgin or its owner, and that IAG would work with regulators to clear any antitrust hurdles. The company would still control a smaller proportion of slots at Heathrow than its rivals do at their main bases, he said previously.
IAG said the BMI purchase would help boost 2015's estimated operating profit of €1.5bn by more than €100m, and that it would be accretive to earnings per share by 2014 at the latest.
"We believe we can turn this around within two years," Mr 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." (Bloomberg)