Lufthansa buys final 20% of BMI

Lufthansa has bought the final 20 per cent of British Midland (BMI) for £19m, paving the way for sale of the UK airline and potentially sparking a bidding war between rivals British Airways (BA) and Virgin Atlantic.

The German carrier bought out BMI founder Sir Michael Bishop for £175m – only £48m of which was for the 50 per cent-plus one share of the stock. The SAS deal – which includes another £19m to terminate other agreements – gives the Lufthansa-controlled UK holding company, LHBD, total ownership.

Although Lufthansa’s official line is that its number one priority is to return the loss-making BMI to profitability, it says it is looking at all the options for its future. A whole raft of other airlines are understood to have looked at BMI’s books when they were opened up by Lufthansa earlier this month, although by far the most vocal are BA and Virgin.

Earlier this week, Willie Walsh, the BA chief executive, reiterated his interest in BMI and said as soon as Lufthansa puts it on the market he will make a formal bid.

BA has the most compelling strategic case, according to Gert Zonneveld at Panmure Gordon. BMI would add another 11 per cent of Heathrow’s take-off and landing slots to BA’s existing 42 per cent share, potentially enabling the airline to pull out of Gatwick altogether. “There would be huge benefits both in terms of connecting traffic and cost savings in having everything at Heathrow,” Mr Zonneveld said.

For Virgin, a BMI takeover would be another step in its transformation from a point-to-point airline to a fully-fledged network carrier as the BMI network was used to feed into Virgin’s long haul routes.