German national carrier Lufthansa has confirmed that it has allowed Virgin Atlantic Airways to complete due diligence on its UK subsidiary BMI British Midland International raising the potential that it could make a formal bid to acquire the airline. Lufthansa has already reached an agreement in principle with International Consolidated Airlines Group (IAG), the parent company of British Airways and Iberia, although no deal has yet been signed. An executive at the German carrier confirmed that both IAG and Virgin Atlantic now have access to BMI’s books and that their business proposals now have an equal chance of success, according to reports.
It is just over a month since Lufthansa confirmed its deal with IAG. “The sale and closing of the deal remain subject to conditions including a binding purchase agreement, further due diligence and regulatory clearances. It is envisaged that the purchase agreement will be signed in the coming weeks and the aim is for the transaction to be completed in the first quarter of 2012,” it said in a statement.
However, Virgin has claimed that selling to IAG would give British Airways too strong a position at London Heathrow and has repeatedly called for antitrust authorities to examine the IAG offer. This is also understood to be a worry for Lufthansa as the original deal could also impact its own competitiveness in the European market by making one of its main rivals stronger.
Virgin Atlantic has confirmed that it is talks “on the next stage of the [BMI] purchase,” but has declined to make any further comment on the talks. Analysts believe that Virgin Atlantic is offering less money than IAG but without any potential regulatory scrutiny its rival’s bid is expected to receive.
Although BMI is currently loss-making the airline has control of 8.5 per cent of take-off and landing slots at capacity-constrained London Heathrow, making it a perfect partner for potential suitors. BA and its sister carrier Iberia currently hold a 43 per cent share of the slots at the UK gateway, while Virgin Atlantic has just three per cent.
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