BA tightens its Heathrow grip with £172m BMI buy
Deal is screwing the travelling public, says Branson after Virgin Atlantic's rival bid fails
The owner of British Airways yesterday saw off rival Virgin Atlantic to secure a £172.5m acquisition of BMI that gives it control of more than half of Heathrow's coveted landing slots.
Sir Richard Branson, founder of Virgin Atlantic, immediately hit back, saying the deal would "screw the travelling public". It means International Airlines Group, the holding company of BA and Iberia, will have 56 more landing slots at Heathrow, lifting its share of the schedule at the world's busiest airport from 45 per cent to 53 per cent.
Willie Walsh, chief executive of IAG, admitted that there would be job losses when BMI, which employs 2,500, is bought from Germany's Lufthansa, although exact numbers were not known. But he dismissed Sir Richard's attack, saying: "I don't take any notice of what he says. I don't think you'd expect him to come out with anything apart from opposition. He's not a spokesperson for the consumer. We will deal with the regulators and any issues that they raise."
Analysts said IAG had secured a good deal, particularly since Lufthansa has agreed to take over the liabilities of BMI's defined benefit pension scheme, valued at about £180m. "The [purchase] price is significantly lower than consensus forecasts of about £300m," Oriel Securities said. In October, Citigroup valued BMI's Heathrow take-off and landing slots alone at €460m (£383m). Three years ago, Continental airlines paid $209m for just four slots.
The all-cash deal saw IAG shares rise 3 per cent to 149.9p.
Mr Walsh claimed the acquisition of BMI was "good news for the UK" since BA will switch most of the carrier's short-haul slots to long-haul destinations in emerging markets, including China, Korea, Indonesia and Vietnam. "There's no question the balance of economic power is shifting towards the East," he said. "We need to get the UK connected."
Sir Richard responded: "Claims that this deal is about new markets from Heathrow are a smokescreen. It simply cuts consumer choice and screws the travelling public. We will fight this monopoly every step of the way."
The takeover is still subject to clearance but Mr Walsh said IAG had already had early discussions with European Commission regulators. "We wouldn't have put so much time and effort into this deal if we didn't believe it was possible," he added.
Lufthansa was forced to take control of BMI, founded more than 70 years ago as Air Schools, training RAF pilots, when its chairman, Sir Michael Bishop, sold his shares for £220m two years ago. The carrier operates almost 2,000 commercial flights a week, making it the second-biggest airline in Heathrow. It reported an operating loss of €154m for the first nine months of this year,
The terms of the acquisition mean Lufthansa can still sell off the Bmibaby and BMI regional brands before disposing of the airline. If it does, IAG said its final price would be "significantly" lower. Mr Walsh said he was not planning on dumping the BMI brand "in the short term".
The chief executive — who last year said IAG had a shopping list of 12 airlines — played down the chances of further purchases next year. Analysts have discussed IAG's interest in Portugal's national carrier TAP, but Mr Walsh said: "We've got work to do with BMI. Acquisitions next year are unlikely."
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