Lufthansa set to take control of BMI

Germany's flagship airline Lufthansa was today set to take control of a UK carrier for the first time after agreeing to buy a majority stake in British Midland in a deal costing £223 million.

BMI owns about 11 per cent of take-off and landing slots at Heathrow and Lufthansa's move gives it access to the lucrative berths at Europe's biggest airport.

Lufthansa already owned a stake of just under 30 per cent in BMI but the deal was made possible by an out-of-court settlement with BMI's majority shareholder Sir Michael Bishop.

When the airline first became a shareholder in BMI in 1999, it agreed an option with Sir Michael to buy his stake - reportedly for about £300 million.

Sir Michael enforced the buy-out option last year but valuations in the airline industry have slumped and BMI sank to losses of almost £100 million last year.

After months of wrangling over the price, he has agreed to cancel the option in return for a £175 million payment.

Lufthansa will now pay a further £48 million on top of this for Sir Michael's stake, taking its ownership up to 80% when the firm has completed traffic rights negotiations with the countries to which BMI flies.

Sir Michael said: "I am pleased that we have settled this dispute. Our agreement resolves the uncertainty over the ownership of bmi, which should be of considerable benefit to the company and its 4,500 employees."

Lufthansa said it was expanding its interests in an airline with important strategic assets.

"In recent years, however, BMI has experienced increasing financial challenges. These have been strongly exacerbated by the sharp rise in fuel prices in the past year and the ongoing global economic crisis," the German firm added.

Across its full mainline and regional network, BMI operates about 1,800 flights a week.

It flies to locations including Antigua, Baku, Cairo, Las Vegas and Tel Aviv as well as UK regional airports such as Norwich, Glasgow, Manchester and Belfast.

BMI began life in 1938 as Air Schools Ltd, specialising in RAF pilot training. In 1959 the company became known as Derby Airways, but changed to British Midland Airways in 1964 when it moved to the newly opened East Midlands Airport in 1965.