(Updates with comments from British Airways, Lufthansa starting in sixth paragraph; adds latest share prices in last.)
Oct. 11 (Bloomberg) -- Virgin Atlantic Airways Ltd. said it’s considering an approach for the U.K.-based BMI unit of Deutsche Lufthansa AG that would combine the two operations.
“BMI is very much up for sale and we are part of that process,” Virgin Atlantic Chief Executive Officer Steve Ridgway said today in an interview in London. “We would like to see if there is a way of putting these two businesses together.”
Richard Branson, Virgin’s billionaire owner, is renewing his interest in a purchase he’s been pursuing for more than a decade after Lufthansa CEO Christoph Franz indicated BMI might be sold. Virgin is playing catch-up after six of BMI’s daily takeoff and landing slots at London Heathrow airport were snapped up last month by British Airways, its chief rival.
A deal would meld Virgin’s long-haul operations with a short-haul network that makes BMI the second-biggest carrier at Heathrow after BA. Ridgway said in 2005 a tie-up was “the great undone deal in aviation,” given the “logic” of the combination.
“We are interested in the future of BMI,” Ridgway said today. “We are complementary businesses. Now, whether that could be done or whether that works for our shareholders, that’s what we need to see. Nothing is decided at the moment.”
Appetite for Slots
British Airways remains “interested” in BMI, said Laura Goodes, a spokeswoman at parent International Consolidated Airlines Group SA, adding: “We’re always looking to increase our Heathrow slot portfolio. That’s always been the case.”
Cologne, Germany-based Lufthansa said last month it had hired a bank to help determine whether to sell BMI or persist with a turnaround plan for a company acquired under duress in 2009 after then-owner Michael Bishop exercised a put option as airline values fell during the global slump.
“There is still a process of evaluating possible options underway,” spokeswoman Claudia Lange said today by phone. “We cannot comment on any possible buyers or the timescale.”
Exposure to markets in the Middle East and North Africa, where traffic has been crimped by political unrest, is limiting the impact of BMI’s recovery strategy. The unit posted a profit in the third quarter of 2010 but had a 120 million-euro ($163 million) operating loss in the first half of this year.
Having first restructured BMI, then handed residual slots to its partners and sold some to British Airways, Lufthansa now seems intent on selling the unit via a “relatively short-term process” that’s likely to be completed this year, according to Stephen Furlong, an analyst at Davy Stockbrokers in Dublin.
Virgin may be particularly attracted to BMI because it lacks a short-haul network of its own from which passengers can transfer to its long-distance flights, Furling said.
“Some people are interested in BMI for its slots, like BA and perhaps also the Middle Eastern carriers, but Virgin can also look it from a feed perspective,” the analyst said. “BMI would provide some feed but whether it would be significant is another thing, so they’ll need to look at it very closely.”
Branson previously considered buying a stake in BMI that was later acquired by Lufthansa in 1999. More recently, in December 2008, Virgin said it was in talks over BMI in the run up to Lufthansa being compelled to take control, while in August 2009 it hired Goldman Sachs Group Inc. to examine a combination as the German company explored options for offloading the unit.
Davy’s Furlong says he expects any deal involving BMI to be “part of a bigger solution” to reposition Virgin Atlantic within the global airline industry.
Virgin is still reviewing plans to find a global alliance partner and potential investor, Ridgway said today. Branson ordered a review of its independence when antitrust regulators allowed BA and Spain’s Iberia, which merged in January to form IAG, to create a joint North Atlantic business with AMR Corp.’s American Airlines.
“There are some interesting options for us, but we haven’t made any decision,” said the CEO, who spoke after Virgin announced plans to use waste gases from steel production to power flights to China and India within three years.
Virgin Atlantic remains concerned about the purchase of BMI slots by British Airways, Ridgway said in the interview.
“We’ll be fighting our corner very strongly to make sure we don’t get any diminution of competition and that those key resources, those key slots, are used in a way that keeps the U.K. competitive and protects choice for consumers,” he said.
Virgin said Sept. 26 it would write to the U.K. Office of Fair Trading and the European Commission asking them to vet the BA purchase, adding that it didn’t bid for the slots because they were advertized as available only for lease.
Virgin Atlantic, which is closely held with Branson owning a 51 percent stake and Singapore Airlines Ltd. the rest, has 3 percent of take-off and landing positions at Heathrow. BA and Iberia hold almost 45 percent and BMI controls 8.5 percent.
Lufthansa was trading 2.1 percent lower at 9.79 euros as of 4:31 p.m. in Frankfurt. London-based IAG was priced down 0.8 percent at 162.1 pence in the U.K. capital.
--With assistance from Alex Webb in Frankfurt. Editors: Chris Jasper, Chad Thomas.
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