British Airways owner IAG agrees to buy BMI for £172.5m

The owners of British Airways today announced a deal to buy ailing airline BMI for £172.5 million amid fears that jobs will be lost following the acquisition.

There also concerns that the takeover will unfairly strengthen BA's position at Heathrow airport, with Sir Richard Branson announcing that his rival airline, Virgin Atlantic, would "fight this monopoly every step of the way".

Under the binding agreement announced today, BA's owners, International Airline Group (IAG) will acquire loss-making BMI, formerly British Midland Airways, from German carrier Lufthansa.

This will give IAG, which also owns Spanish airline Iberia, up to 56 additional, and much prized, take-off and landing slots at Heathrow.

IAG chief executive Willie Walsh warned that there would be "some job losses" as a result of the deal, although he added that it was too early to say just how many posts would go.

However he said there could, eventually, be more jobs from the deal if available short-haul slots were later used for long-haul services which would mean "more pilots, more cabin crew and more engineers".

Mr Walsh also dismissed talk of BA "over-dominance" at Heathrow, saying that the BMI acquisition would actually "enhance competition".

He said BMI's regional services and its low-cost airline, bmibaby were not part of the deal and that Lufthansa had the option to sell them before the IAG deal was completed.

BMI, which employs more than 3,600 staff and flies to Europe, Middle East and Africa and destinations within the UK, made a £153 million pre-tax loss in the year to 2010.

Its regional arm offers short-haul flights from Aberdeen, Edinburgh, Glasgow, Leeds Bradford, Manchester and East Midlands, while bmibaby flies primarily out of East Midlands and Birmingham.

The deal will see IAG own more than half of the slots at Heathrow - 53% - once completed, which compares with Lufthansa's 66% hold at Frankfurt airport and Air France/KLM's 59% grip at Paris's Charles De Gaulle airport.

Mr Walsh 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 long-haul routes to key trading nations while supporting our broad domestic and short-haul network.

"This deal is good news for the UK as we will maintain a comprehensive domestic schedule including Belfast.

"Our plans to expand our long-haul 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.

A spokesman for the Unite union said: "We will be looking to meet with IAG in the immediate future to press for guarantees on jobs and terms."

Sir Richard, whose airline had been keen to do its own deal over BMI, said today: "Claiming that this deal is about new markets from Heathrow is a smoke-screen. This deal simply cuts consumer choice and screws the travelling public.

"BA is already dominant at Heathrow and their removal of BMI just tightens their stranglehold at the world's busiest international airport.

"We will fight this monopoly every step of the way as we think it is bad for the consumer, bad for the industry and bad for Britain."

Shadow transport secretary Maria Eagle said: "The competition concerns, highlighted by the sale of BMI, yet again demonstrate that the Government is completely out of touch with the calls from business for a credible aviation policy.

"By refusing to even consider the need for additional capacity in south-east England, the pressure to use scarce slots to open up new long-haul routes will grow stronger and stronger, putting at risk vital internal UK connections.

"It's clear that this inaction by ministers is now putting jobs and growth at risk."

She went on: "In the light of today's news, I again urge the Transport Secretary (Justine Greening) to accept our offer to work across the political divide on a long- term strategy for both aviation and high-speed rail as part of the plan for jobs and growth that the country needs.

"Labour has accepted the Government's decision to cancel the third runway at Heathrow, but ministers must now accept that their opposition to any other aviation growth in the South East makes no sense."

PA