BA beats Virgin to buy BMI

22nd December 2011

The deal will see IAG pay £172.5m while Lufthansa will retain responsibility for £180m worth of defined benefit pension liabilities.

The jewels in the BMI crown are the extra landing slots at Heathrow which will controversially see BA hold more than 50 per cent of the slots as the Guardian reports here. The share of slots will rise from 45 per cent to 53 per cent.

But Virgin Atlantic boss Richard Branson has urged the competition authorities to intervene and questioned IAG's ambitions to open up new markets in Asia and suggesting the IAG will really use it to increase prices using its dominance.

The Guardian quotes him as saying: "Claiming that this deal is about new markets from Heathrow is a smoke-screen. This deal simply cuts consumer choice and screws the travelling public. BA is already dominant at Heathrow and their removal of bmi just tightens their stranglehold at the world's busiest international airport. 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."

The Guardian also notes that not only is BA merging with Iberia, but has also been allowed to ally with US American airlines in what it describes as a quasi merger.

The Wall Street Journal highlights the threat to Virgin from the deal. It writes: "Through a code-sharing agreement, bmi provides around 20% to 30% of Virgin traffic. There is no guarantee that BA, the dominant player on transatlantic routes from Heathrow, will honor that pact if IAG's deal for bmi goes through."

It also suggests why Lufthansa was not able to BMI pay having bought it in 2009.

"Lufthansa has made efforts to restructure bmi by focusing on routes serving the oil industry in the Middle East and Russia. However, political turmoil in the Middle East this year foiled the airline's plans to return bmi to profit."

BA has reassured the UK regions that connectivity will be maintained.

One key route within the UK is the BMI London to Belfast route. The BBC quotes Walsh this morning, saying: ""It will give security to those who depend on the Belfast-Heathrow link. British Airways has not operated to Belfast for many years. I have made no secret of my desire to return to Belfast and this gives us the opportunity to do so. I am delighted with the news.  In terms of securing connectivity, particularly Belfast to Heathrow, and the UK regions to Heathrow this is the best if not the only deal. I think it is a great news story for the UK."

However there does seem to be a possibility of industrial strife.

The FT quotes Willie Walsh suggesting there will be job losses. "Given the scale of BMI's losses, there is an urgent need to restructure this business. Unfortunately, this will mean some job losses, but we will secure a significant number of high quality jobs here in the UK and create similar new jobs in the future," he says.


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