The European Commission (EC) has given regulatory clearance to the takeover of British Midland by International Airlines Group (IAG). The deal is subject to more concessions than initially proposed by IAG, but will nevertheless go ahead.
According to the ruling, IAG will have to give up a total of 14 daily slot pairs at. Seven of them will have to be used between Heathrow and Aberdeen or Edinburgh. Five slot pairs are to be freed up for services to Riyadh, Cairo, Nice, Moscow, Edinburgh and/or Aberdeen. And two pairs are to be leased to Transaero for flights to Moscow. Other airlines are to be given access to seats on the BMI/ short- and medium-haul aircraft “on normal commercial terms” to accommodate their transfer passengers.
The routes affected are markets served by BMI in competition with British Airways.
“The Commission could clear this transaction in the first phase given the commitments package offered by IAG. The competitive dynamics will be maintained so as to ensure choice and quality of air services for passengers,” says EU Competition Commissioner Joaquin Almunia.
However, the decision was met by sharp criticism from competitors.pointed out that “the last-minute remedies offered this week by British Airways were not shared with the industry and they have not been subject to a detailed assessment.” argued that transactions by legacy carriers are regularly cleared, while its own planned takeover of has been blocked.
While giving up slots for new competitors to enter specific routes has been a common feature of EC regulatory approvals, in reality few new entrants have taken advantage of the opportunities because they would have to compete with a strong hub carrier in markets that are often not directly linked to their own main bases.
IAG is buying money-losing BMI fromfor £172.5 million. The price will be significantly reduced if Lufthansa does not sell low-fare affiliate BMI baby before the closing. The transaction is to be completed by about April 20, when several technical conditions are finalized, IAG says. Lufthansa has been in talks with several potential investors for BMI baby, which IAG considers to be non-core, but a sale agreement is still outstanding.
IAG’s slot portfolio at Heathrow will increase by “at least an average 43 daily slot pairs,” according to the company. IAG has said that the new capacity will be used partly to strengthen the European network, but mainly for expansion into Asia and particularly China.
IAG CEO Willie Walsh believes that the earnings target for 2015 will not be affected by the concessions made. IAG has said that by that year its profit will be about £100 million higher because of the BMI takeover. Integration and restructuring costs also are estimated to come to about £100 million. The expenses are to be spread over three years, with most of the costs due in the first year.
IAG plans to operate BMI’s summer schedule and make the network changes over time.
Lufthansa took over the BMI in 2009 based on a 1999 commitment to the airline’s former owner, Sir Michael Bishop. Lufthansa failed to turn around its new subsidiary and never tried to sell it to Virgin Atlantic, which has been interested in merging with BMI for many years. Virgin Atlantic also was in the bidding process for BMI, but Lufthansa decided in favor of IAG, even though it indirectly strengthened one of its largest competitors by allowing IAG to grow its long-haul business at Heathrow.