Lufthansa plans to sell BMI

[Flanker]

I'm going to post it here because we have touched the subject in the beginning of this thread and it has everything to do with analysing LH's competence as a parent company.

As I've always said, LH is often wrongly credited for the turn-around of LX. LX's top management have done all the job by themselves, LH just happened to make the excellent decision of buying LX out just before they turned a profit.

After failing to turn-around BMI based at LHR, one of the biggest crossroads of the world, now LH is struggling with AUA. AUA won't meet the over-ambitious (and unrealistic) goal set during the 2009 take-over of turning a profit in 2011. Worse, AUA is deepening its losses and entering a downward spiral with talks of restructuring, again.
LH is saying that it won't inject more money into AUA unless AUA can restructure significantly to turn the tide.

[regi]

After failing to turn-around BMI based at LHR, one of the biggest crossroads of the world, now LH is struggling with AUA.

Lufthansa would not be the first German company that fails to make a British company profitable - see the Rover saga and BMW.

[Air Key West]

One has to remember that LH was legally forced to buy Michael Bishop's majority share in BD, ending up with something (BD) they didn't probably want. I have the feeling that LH didn't try really hard to turn BD around, an uphill struggle in an environment dominated by BA and LCCs, and the easiest thing to do was probably to sell BD. However, what baffles me is that LH sold BD to BA, although it is said there was also an offer from Branson (VS). Why did LH close a deal which helps a major competitor (BA) to become even more powerful ? Branson's offer must have been lower, but from a long-term strategic point of few, it would have made sense to sell to VS, even at a lower price. Isn't VS seen as a potential Star Alliance member ? Unless "backstage", LH already knew VS would join Skyteam ? A lot of questions, very few answers.

Drifting slightly away from this topic (but don't we all do it occasionally), I tend to agree with Flanker that LH didn't turn around LX and doesn't deserve the credit for the success of the Swiss airline. LX had already turned itself around when LH took it over. Being part of the LH Group will certainly have helped LX become even more successful, but one can see that, although being owned by LH, LX has its own dynamics and is becoming Europe's best airline, like its predecessor Swissair was in the 1980's and early '90's. Just one example : in Zurich, LX is now offering C pax a priority bus transfer from the aircraft to the terminal when the aircraft is in a remote parking position. More info in :
http://www.swiss.com/web/EN/about_swiss ... 11201.aspx

As to LH not having exercised its right to acquire the remaining 55 % of b.air in April 2011, it may all have to do with the arrival of Christoph Franz at the head of LH. I may be wrong, but I see Franz as LH's Mr Austerity, also someone who just like Merkel governs for Germany not for Europe, Franz is managing LH for LH only, ignoring commitments made by its predecessor, Wolfgang Mayrhuber.

LH has to right to wait until April 2014 to buy the remaining 55 % of SN. What if LH/Franz decide not to acquire the remaining part of SN by 2014 ?

[LJ]

Why did LH close a deal which helps a major competitor (BA) to become even more powerful ?

I think the answer is simple. LH nor Star want a hub at LHR and LHR will be O&D only. Therefore Star doesn't need all the BMI slots. If you see how LH increases the UK market with flights to Aberdeen, it's clear that they follow the same strategy as Skyteam. Why putting a lot of money in a market where IAG will always dominate? As IAG put in the highest bid, why not sell it to IAG?

Unless "backstage", LH already knew VS would join Skyteam ? A lot of questions, very few answers.

I think nobody knows what will happen to VS. It all depends on who will buy the shares owned by SQ.

LH has to right to wait until April 2014 to buy the remaining 55 % of SN. What if LH/Franz decide not to acquire the remaining part of SN by 2014 ?

They'll buy the remainder of SN some day. However, I think they'll wait as long as possible (though they'll receive some cash out of the BMI sale). They're not in a rush, and have also a few other projects which they've to look at.

[Air Key West]

I agree. I now also have the feeling that after having decided not to become the sole owner of SN this year, LH will probalby wait as long as it is conveinet for them to buy the remaining 55% of b.air. By already owning 45% of the airline, they are pretty sure that neither AF-KL nor IAG could lay their hands on the airline (if they wanted to). And indeed, "they have other projects to look at", like buying TAP in order to prevent it from being taken over by IAG. I'm tempted to think that the money from the sale of BD will probably be used first to buy TAP.

[ticketbuyer]

If LH are selling BD to buy TAP what else could they do?
Invest in other airlines?
A share of Aer Lingus? They could make an alternative transatlantic alliance with JetBlue, 19% owned by LH.
Sell JetBlue and focus on Europe? Expand SN transatlatlantic? BRU will soon be the westernmost hub for LH. :think:

[cnc]

However, what baffles me is that LH sold BD to BA, although it is said there was also an offer from Branson (VS).

source? by my knowledge there was no bid from VS, only a lot of talk but that has been the case for months, IAG actually made an offer and LH took it.

They'll buy the remainder of SN some day. However, I think they'll wait as long as possible (though they'll receive some cash out of the BMI sale). They're not in a rush, and have also a few other projects which they've to look at.

Lets hope you are right but at this moment there's a bigger chance they don't.

If LH are selling BD to buy TAP what else could they do?
Invest in other airlines?
A share of Aer Lingus? They could make an alternative transatlantic alliance with JetBlue, 19% owned by LH.
Sell JetBlue and focus on Europe? Expand SN transatlatlantic? BRU will soon be the westernmost hub for LH. :think:

LH wants to sell their stake in B6.
BRU doesn't provide a better strategic position for transatlantic flights then MUC or FRA. so don't dream too much

[LJ]

source? by my knowledge there was no bid from VS, only a lot of talk but that has been the case for months, IAG actually made an offer and LH took it.

There was a report saying that VS upped their offer. However, I agree, we don't know for certain that VS made an offer for BMI. Though this doesn't mean VS didn't put a bid in either as bidders don't have to be disclosed and I doubt LH will say something about competing bids when it already accepted another bids.

[euroflyer]

why should LH sell bmi tp VS and thereby help a 'competitor' somehow linked to the own camp to get a stronger position in UK? Even if airlines like VS and LH are somehow linked via SQ and the *alliance, they are still independent companies aiming at making a profit for their own company. UK is BA's home country and market anyway just as much as France is AF and Germany is LH. I feel especially LH and BA had their go at each other in the respective home markets but they seem to have found out that it might be better for each of them to keep away from the home market of the opponent ... Now those pax who do not want to fly with BA in the UK can go for example with LH to FRA and connect from there. By strengthening VS via selling bmi to them VS would get more of the non-BA-friendly UK customers; that cannot be in the interest of LH. VS would have wanted to strengthen bmi and make a full-scale competitor to BA out of them. BA probably will scale them down and reduce "over-capacities"; this way there will be a bigger piece of the cake left for LH in the UK as well ... Might not be good for competition or prices for customers, but that is not what airlines are looking for ...

[Air Key West]

To cnc asking for the source for my statement that there was a bid sent by VS to LH to buy BD, one article in particular (but also a few others) mentions it. See :
http://www.eturbonews.com/26215/virgin- ... till-alive

To euroflyer, I am tempted to say that he could be right, which leads me indirectly to think that LH will not fully take over b.air, that LH just wanted a big share of the airline to prevent AF-KL and BA/IAG from grabbing SN, and this could lead us to the conclusion that SN will not be taken over by LH, but that they were take in (ils ont été eus / ze zijn gefopt) by LH.

Looking forward to reactions.

[euroflyer]

To euroflyer, I am tempted to say that he could be right, which leads me indirectly to think that LH will not fully take over b.air, that LH just wanted a big share of the airline to prevent AF-KL and BA/IAG from grabbing SN, and this could lead us to the conclusion that SN will not be taken over by LH, but that they were take in (ils ont été eus / ze zijn gefopt) by LH.

Looking forward to reactions.

well, the difference is that there is no other airline to sell SN to in Belgium ... If LH wants to keep (or get) Belgium and Brussels as their home market they have to keep SN. If they sell it or close it down immediately BA and AF would try to get a bigger share of the market. So as long as LH can get a very big part of the Belgium market via owning SN and make some money with SN; I assume SN is save. IF however SN continues to loose money (i.e. LH has to pay for them year after year) LH will start thinking how big the profit is they make with the Belgium market as a group and calculate if they would not be better off with a smaller part of the market without paying for SN. I am afraid it is as easy as this. SN needs to proof they can earn money, than they are save. Market size is not important, making money is all what counts. This is a bit a no-nonsense approach, but hey, LH is a German company

[ticketbuyer]

Pardon my ignorance, but what is SN's financial situation? How much do they lose?

[sn26567]

The sale of bmi to Bristish Airways is not yet done. Virgin is still discussing with Lufthansa and may make a higher bid. This would please Lufthansa, which is weary to sell bmi and its coveted Heathrow slots to its main rival BA.

More from Reuters

[Boeing767copilot]

Lufthansa prepares for difficult 2012


http://atwonline.com/airline-finance-da ... -2012-1217

[sn26567]

Virgin Atlantic is now carrying out due diligence.

Lufthansa expects a final decision on the sale of BMI British Midland in the next few weeks, according to Christoph Franz - Lufthansa CEO.

I cannot resist giving you the comments of AERBT:

British Airways proposed purchase from Lufthansa of bmi is not a done deal. Virgin Atlantic has come in with a bid which, whilst thought to be less than the BA offer, has certain advantages for the German airline.

A Virgin Atlantic takeover of the former British Midland Airways would probably happen far quicker, with significant cost savings, as it would not be subject to regularity examination and may well draw the airline, 51% owned by Richard Branson’s interests, into the Star Alliance fold. Minority shareholder Singapore Airlines was a founder member of the global grouping.

For BA the great advantage of taking over bmi is the added slots it would give at Heathrow, allowing for flexibility and future expansion given the Government’s ‘no new south east’ runways policy. Duplicated routes would be eliminated.

Owned by Virgin Atlantic, bmi would feed into the airline’s Heathrow hub more so than it does now, but the Crawley-based carrier lacks any experience in the short haul area. A stronger British Airways would not be seen in the best light by Lufthansa in spite of short term monetary gain.

Virgin may also want to use some slots for long haul and become the dominant airline from Terminal 2.

[Air Key West]

Im' glad to see some people think like me. See my post of 3 Dec.

However, what baffles me is that LH sold BD to BA, although it is said there was also an offer from Branson (VS). Why did LH close a deal which helps a major competitor (BA) to become even more powerful ? Branson's offer must have been lower, but from a long-term strategic point of few, it would have made sense to sell to VS, even at a lower price. Isn't VS seen as a potential Star Alliance member ?

Great minds think alike.

[cnc]

oh come on you really believe VS will buy BMI? they would get more 2x the amount of slots they currently own and already they have no use for all their slots. making BMI a VS feeder would require even more money (which they don't have) and time.
i say VS placed a bid so it wouldn't lose face after all the barking but knowing their bid is too low to actually get accepted.
could you also explain how a sell to VS at half price would benefit LH?
alliance member or not, it would mean VS is taking pax and fly them from LHR instead of LH flying them via FRA and MUC

[Boeing767copilot]

International Airlines Group (IAG) and Deutsche Lufthansa AG (Lufthansa) have today reached a binding agreement for IAG to acquire British Midland Limited (bmi). The cost is £172.5 million in cash though the price is subject to significant reductions. bmi consists of three distinct business units - bmi mainline, bmi regional and bmibaby.

[Bralo20]

PRESS RELEASE

Binding Agreement for bmi purchase
RNS Number : 4826U
International Cons Airlines Group
22 December 2011


BINDING AGREEMENT FOR BMI PURCHASE

Following the announcement on November 4, 2011, International Airlines Group (IAG) and Deutsche Lufthansa AG (Lufthansa) have today reached a binding agreement for IAG to acquire British Midland Limited (bmi). The cost is £172.5 million in cash though the price is subject to significant reductions. bmi consists of three distinct business units - bmi mainline, bmi regional and bmibaby.

Transaction highlights:

· Acquisition of bmi for £172.5million in cash

· IAG's Heathrow slot portfolio to increase by up to 56 additional daily slot pairs

· Lufthansa to take on bmi's defined benefit pension scheme

· Lufthansa has the option to sell bmi regional and bmibaby before completion

· Significant price reduction if Lufthansa does not opt to sell bmibaby before completion

· Deal subject to competition clearance

· Earnings per share (EPS) accretive by 2014 at the latest

· 2015 operating profit target of €1.5 billion to increase by more than €100 million with consequent increase in EPS

· Underpins goal of 12 per cent return on capital employed by 2015

· Restructuring costs spread over three years and significantly lower in total than bmi's current annual losses

Willie Walsh, IAG chief executive, said: "Buying bmi's mainline business gives IAG a unique opportunity to grow at Heathrow, one of our key hub airports. Using the slot portfolio more efficiently provides the option to launch new longhaul routes to key trading nations while supporting our broad domestic and shorthaul network.

"This deal is good news for the UK as we will maintain a comprehensive domestic schedule including Belfast. Our plans to expand our longhaul network would guarantee growth by making Britain better able to compete on a global scale. It will also help maximise Heathrow's position as a world class hub airport.

"Customers will benefit from access to new destinations, more convenient schedules, enhanced frequent flyer benefits and greater investment than had been possible for loss-making bmi.

"Given the scale of bmi's losses, there is an urgent need to restructure the business. Unfortunately, this will mean some job losses but we will secure a significant number of high quality jobs here in the UK and create similar new jobs in the future. IAG's purchase of bmi will protect more British jobs than if the airline had been closed and had its Heathrow slots sold off. There will be restructuring costs spread over three years but these will be significantly lower in total than bmi's current annual losses.

"bmi regional and bmibaby are not part of our plans and Lufthansa has the option to sell them before completion".

Financing

IAG intends to finance the purchase from its own funds. £60 million of the purchase price will be paid in four instalments to Lufthansa pre-completion. This amount will be secured by Heathrow slots.

Pensions

Lufthansa has agreed to take on bmi's defined benefit pension scheme.

Timetable and conditions

It is hoped that the transaction will be completed during Q1 2012 subject to regulatory clearance from the European Commission and other bodies. There is a termination fee of £10 million which is only payable by IAG if phase 1 EU regulatory approval is not achieved by March 31, 2012 and either party elects to terminate the sales purchase agreement.

About bmi

bmi mainline operates Airbus aircraft to destinations in the domestic UK market, Europe, CIS states, Middle East and Africa from London Heathrow. bmi regional operates an Embraer fleet and offers shorthaul flights within the UK and Europe from 7 regional airports. bmibaby operates Boeing aircraft and is a low-cost airline flying primarily out of East Midlands and Birmingham airports.

bmi reported gross assets of £284 million as at December 31, 2010 and a £153 million loss before tax on revenues of £777 million for the year 2010.

ends

[Boeing767copilot]

Lufthansa faces heavy net loss from BMI sale to IAG


http://www.flightglobal.com/news/articl ... ag-366309/