Bloomberg News

Lufthansa in Talks to Sell Bmibaby Unit to Intro of Germany

February 01, 2012

(Updates with closing share prices from fifth paragraph.)

Jan. 20 (Bloomberg) -- Deutsche Lufthansa AG is in talks to sell the discount division of its British BMI subsidiary to German turnaround specialist Intro Aviation GmbH, Intro Chief Executive Officer Peter Oncken said in an interview.

“We have expressed our interest and the whole procedure is now beginning,” Oncken said by telephone. “The books are being opened and we are looking at the business in detail. We will see if it can be restructured.”

Lufthansa, Europe’s second-biggest airline, is seeking a buyer for the bmibaby discount unit after agreeing last month to sell BMI to British Airways parent International Consolidated Airlines Group SA for 172.5 million pounds ($267 million). Other parties are also interested in the low-cost arm, BMI said today.

Oncken said that, from initial figures, bmibaby could probably be restructured “relatively quickly,” though the operation is closely integrated with the rest of BMI. Intro Aviation would draw on its experience in turning around former British Airways unit Deutsche BA and Germany’s LTU, he said.

“There are ongoing talks, but we can’t give any further details,” Lufthansa spokeswoman Claudia Lange said. The Cologne-based carrier, which has said it wants to conclude the main deal with IAG this quarter, closed 0.1 percent lower at 10.16 euros in Frankfurt.

‘Several’ Bidders

BMI aims to conclude a sale of bmibaby “as soon as possible,” it said in response to an e-mail seeking comment.

“There are several interested parties and we are in the process of identifying the preferred buyer,” the company said, adding that a deal has also been concluded with a U.K. buyer for its BMI Regional arm, subject to “certain preconditions.”

The regional unit operates from cities including Aberdeen, Edinburgh and Glasgow in Scotland and Manchester in northwest England using a fleet of 19 Embraer SA ERJ-135 and ERJ-145 jets, according to data compiled by aviation consultancy Ascend.

London-based IAG, which wants BMI for the take-off and landing slots at the U.K. capital’s crowded Heathrow airport used by its mainline operation, will get a discount on the purchase price if Lufthansa fails to offload bmibaby. IAG rose 2.4 percent before closing up 1.3 percent at 167.60 pence.

Boeing Fleet

Bmibaby, based in Castle Donington in central England, operates 12 Boeing Co. 737-300 aircraft and two 737-500 variants from bases at nearby East Midlands and Birmingham airports and from Belfast in Northern Ireland.

The unit had a loss of about 120 million euros ($129 million) last year, according to Credit Suisse Group analyst Neil Glynn, who has “neutral” ratings on Lufthansa and IAG.

Given that the German airline has agreed to reduce BMI’s selling price should it fail to dispose of bmibaby, the company will be “essentially paying restructuring costs to someone to take it off their hands,” London-based Glynn said.

Intro Aviation was founded by Oncken and German retail entrepreneur Hans Rudolf Wohrl, who previously ran Nuremburg- based carrier NFD before selling the company to Eurowings in 1992, according to Intro’s website.

Wohrl became CEO of Deutsche BA in 2003, having initially being hired by British Airways to shut the German unit. After refocusing the company, known as DBA, on the high-frequency business travel market, it was sold to Air Berlin Plc in 2006.

LTU was acquired by Intro Aviation in the same year that DBA was sold, with Oncken as CEO and Wohrl as chairman. It was also bought by Air Berlin, in 2007, the website says.

“I think it is dependent upon the experience we have gathered over the decades,” Oncken said of Intro’s interest in bmibaby. “I can’t at this stage say whether it would be like the Deutsche BA model.”

Intro Aviation also has a number of other parallel airline projects, including a commuter carrier in the Caribbean, which it “may be interested in integrating,” the executive said, without specifying what the nature of any synergies might be.

--Editors: Chris Jasper, Andrew Noel.

To contact the reporters on this story: Steven Rothwell in London at srothwell@bloomberg.net; Alex Webb in Frankfurt at awebb25@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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