International Airlines Group, owner of British Airways, has sealed a deal to buy BMI for ?172.5m, surpassing the rival bidder Virgin Atlantic. IAG expects the takeover increase the estimated operating profits by more than ?100m by 2015 and to add to earnings per share by 2014.
The deal will give IAG more than half the take-off and landing slots at Heathrow. However, it is dependent on regulatory clearance.
Virgin founder Sir Richard Branson has made it clear that he will fight over the deal and has urged the European competition authorities to block the deal. He said, the deal cuts consumer choice and screws the traveling public. BA is already dominant at Heathrow and their removal of BMI just tightens their stranglehold at the world?s busiest international airport.?
Willie Walsh, IAG chief executive, had a different view. He said that BMI needs an urgent restructuring. The airline reported an operating loss of ?154m in the nine months till September 30. He said revamping would end up in job losses, but added that British jobs will be protected. Restructuring costs will be spread over a period of three years.
IAG expects to turn this around within two years.
IAG is optimistic about the deal and plans to efficiently launch long haul routes to important trading nations while supporting both domestic and short haul networks.
IAG was formed from BA and Iberia merger. IAG is only interested in BMI?s main business and it has warned Lufthansa of paring prices by a significant amount if Lufthansa failed to offload its low-fare operations Bmibaby before the deal completes.
The share prices of both IAG and Lufthansa rose by 3.1% and 2.4% higher respectively.