british Airways owner IAG has agreed to buy Lufthansa’s British unit bmi for £172.5m, seeing off rival bidder Virgin in the race to grab loss-making bmi’s coveted runway slots at London Heathrow.
The all-cash deal, which requires regulatory approval, would give IAG more than half the daily take-off and landing slots at Heathrow, Europe’s busiest airport, which is operating at full capacity after plans to build a third runway were scrapped.
Virgin Atlantic, which tabled a rival offer for bmi earlier this month, said it would ask anti-trust regulators to block the deal as it would stifle competition and push up prices.
“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,” Virgin founder Richard Branson said in a statement.
IAG currently holds 43.1 per cent of the slots at Heathrow. This would rise to about 52 per cent if its takeover of bmi gets the go-ahead from regulators.
That compares with Lufthansa’s two-thirds share of the runway slots at Frankfurt, and Air France-KLM’s 59 per cent of Charles de Gaulle in Paris and 57 per cent of Amsterdam’s Schipol, and suggests regulators are likely to approve the deal.
“In terms of dominance and position at a primary hub this would not be setting a new boundary,” said Investec analyst Andrew Fitchie.
“Expect a bumpy ride, but realistically they’re not setting new records here.”
IAG, which also owns Spain’s Iberia, said absorbing bmi’s runway slots would allow it to launch lucrative new long-haul routes from Heathrow. The deal should be complete by March, and will contribute to earnings from 2014 at the latest, it added.
Chief executive Willie Walsh said there would be “some job losses” as part of an effort to turn around ailing bmi, formerly British Midland International, which last year racked up pre-tax losses of £153m.
“We’ve put a lot of time and effort in getting to this point in the process, and we wouldn’t have done that if we thought it was impossible from a regulatory point of view,” Mr Walsh added.
“I think this is a highly positive strategic move for IAG because it delivers a big boost to its presence in what is arguably the world’s most attractive aviation market,” said Douglas McNeill, an analyst at stockbroker Charles Stanley.