IAG acquires BMI from Lufthansa, Virgin Atlantic falls short

International Airlines Group (London), the parent of British Airways (London) and Iberia (Madrid), has won the battle with Virgin Atlantic Airways (London) to acquire BMI (East Midlands) and the valuable London Heathrow slots from Lufthansa.

IAG issued the following statement:

“Following the announcement on November 4, 2011, International Airlines Group (IAG) and Deutsche Lufthansa AG (Lufthansa) have today (December 22) reached a binding agreement for IAG to acquire British Midland Limited (bmi). The cost is £172.5 million in cash though the price is subject to significant reductions.

Bmi consists of three distinct business units – bmi mainline, bmi regional and bmibaby.

Transaction highlights:

· Acquisition of bmi for £172.5million in cash
· IAG’s Heathrow slot portfolio to increase by up to 56 additional daily slot pairs
· Lufthansa to take on bmi’s defined benefit pension scheme
· Lufthansa has the option to sell bmi regional and bmibaby before completion
· Significant price reduction if Lufthansa does not opt to sell bmibaby before completion
· Deal subject to competition clearance
· Earnings per share (EPS) accretive by 2014 at the latest
· 2015 operating profit target of €1.5 billion to increase by more than €100 million with consequent increase in EPS
· Underpins goal of 12 per cent return on capital employed by 2015
· Restructuring costs spread over three years and significantly lower in total than bmi’s current annual losses”

It is still unclear what will happen to the bmi name and brand but it is likely at some point to be absorbed into British Airways. BA, already the dominant carrier at LHR, will become even larger if this deal is approved.

What will be the competitive response by Virgin Atlantic and others?

Copyright Photo: Paul Denton.

bmi Slide Show: CLICK HERE