British Airways owner IAG has agreed to buy Lufthansa's UK unit bmi in a bid to squeeze more growth from its capacity constrained Heathrow hub and expand services to emerging markets in Asia and Latin America. The agreement came as IAG reported a sharp fall in third-quarter profit, hit by higher fuel costs, highlighting the need for airlines to seek growth where they can.
BA and Iberia parent IAG on Friday said it had reached an agreement in principle with Lufthansa for the sale of loss-making bmi with a deal likely to be completed in the first quarter of 2012, subject to due diligence and regulatory clearances. With 9 percent of the take-off and landing slots, bmi is the second-largest carrier at Heathrow, Europe's busiest airport. Buying bmi offers IAG the opportunity to grow at Heathrow, which is operating at full capacity after plans to build a third runway were scrapped.
"It is clear that bmi in its current form is unsustainable but we're confident we can make a success of it," IAG's Chief Executive Willie Walsh told reporters. "We will particularly look to expand BA's long-haul network ... it will allow us to connect Heathrow and the UK to emerging markets, particularly in Asia and Latin America."
Bmi comprises three underperforming businesses: a carrier serving Europe, the Middle East and Africa; bmi regional, serving the UK; and low-cost unit bmibaby. Analysts believe the IAG deal, which is for the main carrier and bmibaby, would be worth around 300 million pounds ($479 million). The regional unit will likely be sold to a UK investor group.
IAG shares were down 3 percent at 164 pence by 1045 GMT, valuing the business at around 2 billion pounds. IAG, Europe's second-biggest airline group by value behind Lufthansa, said operating profit in the three months to the end of September fell to 363 million euros ($499 million) from last year's 528 million euros. It was just ahead of the 350 million euros analysts had expected.