British Airways parent International Airlines Group on Friday announced
an "agreement in principle" to acquire British Midland (BMI) from
Lufthansa. BMI has hemorrhaged money since 2009 when Lufthansa was obliged to
buy it from former owner Sir Michael Bishop. With the acquisition, BA would
increase its departure and landing slots at London Heathrow to 53 percent from
45 percent.
IAG and Lufthansa aim to sign the agreement in the coming weeks, with a
target completion date of the first quarter of 2012. An IAG statement indicated
the deal remains subject to conditions "including a binding purchase
agreement, further due diligence and regulatory clearances."
"We would use the [Heathrow] slots in a much more effective way,"
IAG chief executive Willie Walsh on Friday told a British Broadcasting Corp. radio
station. "In the main, we would look to expand the long-haul network that
BA operates at Heathrow."
BMI's network consists mainly of domestic U.K., European and medium-haul
routes, especially to North Africa, the Middle East, Russia and other Eastern
European markets.
The IAG announcement drew instant criticism from Virgin Atlantic, which
also had been negotiating to buy BMI. The proposed IAG acquisition would increase
BA's dominance at Heathrow, where in the past year it already grew stronger by
merging with Iberia and launching a joint venture with American Airlines. It also
would deprive Virgin of an opportunity to add a short-haul network and
eliminate BMI, currently a codeshare partner, as a significant source of feeder
traffic.
"We
remain committed to the acquisition of BMI and believe that our offer will lead
to the best outcome for the millions of consumers that fly in and out of
Heathrow every year," according to a Virgin statement. "British
Airways' hold over Heathrow is already too dominant, and we are very concerned—as
the competition authorities should also be—that BA's purchase of BMI would be
disastrous for consumer choice and competition."
Walsh during
his BBC interview rejected the accusation of over-dominance, saying BA's slot
ownership at Heathrow still would be "significantly less than the slots
held by Lufthansa at Frankfurt or Air France/KLM at its major hubs. There is
very little overlap in terms of the network BMI has had in recent years with
that of BA."
Chris Reynolds, senior partner of travel management consultancy 3Sixty
Global, said he would be concerned for his corporate clients if BA, which for years has been exploring a possible purchase of BMI,
took an axe to BMI's current network. "As a buyer of corporate travel with
many customers in the U.K. regions, I fear for the continuation of BMI regional
services and less-profitable international flights," he said. "The London
Heathrow slots could well be used for more lucrative routes and the less-profitable
routes canceled."