Bloomberg News

IAG Pledges to ‘Grab’ Lufthansa’s BMI, Defeating Branson Bid

December 28, 2011

(Updates with IAG’s share-price performance versus peers in sixth paragraph.)

Dec. 21 (Bloomberg) -- IAG, the owner of British Airways and Spain’s Iberia, said it’s closing in on the purchase of Deutsche Lufthansa AG’s BMI unit following a counterbid from U.K. billionaire Richard Branson’s Virgin Atlantic Airways Ltd.

While competition from Virgin may extend the sale process, London-based IAG aims to complete the transaction “sooner rather than later,” IAG Chairman Antonio Vazquez said in an interview in Madrid.

“I think we’ll be able to grab it for sure,” Vazquez said yesterday after a press event. “The negotiations are going well and I’m very optimistic we will be able to complete the deal.”

Lufthansa said Dec. 12 it was considering an approach for BMI from Virgin, weeks after IAG had announced a draft accord to buy the unit from the German carrier. The U.K. companies want the Castle Donington, England-based airline for its operating slots at London’s Heathrow airport, where both have main bases.

“The deal is being negotiated and Lufthansa wants to get rid of BMI as soon as possible,” Iberia Chief Executive Officer Rafael Sanchez-Lozano said in a separate interview at the event.

IAG, as International Consolidated Airlines Group SA is known, rose as much as 2.5 percent and was trading 2.1 percent higher at 148 pence as of 12:13 p.m. in London, the sharpest gain on both the six-member Bloomberg EMEA Airlines Index and Spain’s benchmark IBEX 35 Index.

That values the company at 2.75 billion pounds ($4.32 billion). Cologne-based Lufthansa was priced up 0.25 percent at 9.18 euros in Frankfurt.

IAG Edge

“IAG is best positioned as it’s willing to pay a premium,” said Yan Derocles, an analyst at Oddo Securities in Paris. “Lufthansa will get some cash and end the negative issues coming from BMI, while IAG will boost its market share at Heathrow and have some more aircraft and experienced pilots.”

IAG is very interested in buying Portugal’s TAP SGPS SA to add routes to Brazil, though there are no negotiations right now as the government hasn’t made a decision to sell, Vazquez said.

The purchase of a 29 percent stake in IAG ally Air Berlin Plc by long-haul rival Etihad Airways of Abu Dhabi, announced this week, “was a bit unexpected” and hasn’t yet been evaluated, though it may have no major impact, Sanchez-Lozano said.

“It’s a natural move by Etihad as they seem to be interested in the European market,” Vazquez said of the transaction, which will provide Air Berlin with the equivalent of $350 million in equity financing and funds for planes.

Strikes by pilots at IAG’s Iberia unit won’t stall the transfer of aircraft to a lower-cost operation, Sanchez-Lozano said. The establishment of the new fleet, aimed at boosting the profitability of short-haul operations, is due in three months.

“This is not something we’ve created overnight just because we wanted to,” he said. “It’s something necessary which will be carried out. No matter what happens, Iberia Express will be operating as planned.”

--With assistance from Steve Rothwell in London. Editors: Chris Jasper, Chad Thomas.

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net


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