Lufthansa takes a hit on its BMI stake

[Runway 31]

I noticed an article in one of todays papers which shows that Lufthansa took 76m euro hit from its BMI stake

The report stated that Lufthansa has been forced to take a heavy write-down on the value of its 30 per cent stake in BMI British Midland after another year of significant losses.

In its annual report, Lufthansa said its results had been hit by charges of 76 million (£51 million) in 2003 from its stake in BMI - up from 66m (£44m) a year earlier. BMI is expected to disclose the scale of its continuing losses next week.

What next for BMI, do you think that it still has a future or is a take over likely ?.

[egnxema]

Similar articles recently have reported that Richard Branson is still courting bmi for a take-over/merger with Virgin.

Interesting that bmibaby is being set up as a Ltd company with its own AOC, giving bmi greater flexiblitiy in any restructuring.

Also, Virgin has reserved the right to use the Virgin brand on European servies within 2 years after the SN Brussels/Virgin Express merger.

I feel sure British Virgin Airlines is not far from its begining.

[smartercharter]

Hmmm British Virgin Airlines........perhaps they could use the callsign BEVVY!
:ok:

[Bagso]

sincerely hope its not a British Airline...........

if it is, they would probaly pull Manchesters recently established long haul network inside a month !

Can't have those nasty northerners not flying via London can we !

Pray For Lufthansa.

[Anthony Carn]

What next for BMI, do you think that it still has a future or is a take over likely ?.
I fail to see any significant action being taken to reverse the losses. Anyone know otherwise ?

Anyone disagree that a collapse or a buyout are inevitable ?

Question -- When/if bmi collapses, are Heathrow slots up for grabs at a lower, or a greater cost than they would be via a pre-emptive take-over ?

[WHBM]

I can't see Richard Branson (or any other sensible investor) considering the acquisition of "loss-making" BMI without understanding in very great detail where the problems lie and having a good plan for how they are going to deal with them.

But anyway, in the days of Franchise Carriers it is really no longer necessary to actually buy the company to get the integration benefits (BA please note). BMI could be run as a Virgin franchise giving all the connection benefits, integrated brand, shared Heathrow base costs, etc without the investment and with the ability to walk away if it really starts to go pear-shaped. The only benefit from purchase would be acquiring the Heathrow slots and transferring them to Virgin longhaul.

Is this really what is wanted ? BA have for years said short haul is loss making and long haul is profitable. It always seems that this is creative accounting, in the way the revenue from all the connecting passengers is divided up between their flights. If it was really true BA would have been out of short haul years ago and sold off those Heathrow slots it didn't want for a fortune. Yet BA short haul outnumber long haul at Heathrow about 2 to 1. And I seem to pay the same to go to Dusseldorf as to Miami. It would be quite possible to devise another accounting model which showed the short haul to be profitable and the long haul loss making.

So knowing this about creative accountancy and the presentation of figures, I wonder how much of the BMI loss is just that - presentation. I know the fares I pay for frequent travel out of Heathrow on BMI and the typical load factors I encounter. We are told that slots at Heathrow are like gold dust because operating from there is so profitable - and BMI are the second largest carrier there. BMI have stocked up with new A319-320-321 and Embraers in recent years. Apart from the Fokkers and the Baby fleet the whole lot is less than 6 years old. Now the financiers of that know a thing or two about whether they are likely to get their money back.

[Anthony Carn]

Some interesting views, there, WHBM.

For what reason would bmi's foreign partners be willing to participate with bmi in "creative accounting" ?

This is'nt a criticism of your theory, which sounds quite feasible. It's a genuine question from someone with sparse accountancy knowledge.

[Copenhagen]

BMI Heathrow is profitable... its all the other excursions round the country that are loss making.

BMIR
BMIBaby
BMIManchester
BMIAirWales

[kestral1]

Just a little thought the last post included BMI MAN as one of the loss making areas what about the fact they have the YYZ and have the BGI, antiga and St lucia for the winter season also this is probably the best thing as its the only scheduled airline offering this service direct instead of travelling down south. I know staff who work for BMI at checkin and flights are mostly full a few empties and Pax love the service offered.

[Runway 31]

I here that BMI will report two new European services from Scotland next week including Edinburgh-Munich.

[baps]

Copenhagen, you're kidding right! BMI heathrow is not profitable. The only part of the buisiness that is close to profit is BMIR and it appears that even they aren't quite there. God knows what will happen to BMI in the future but it'll be hard work to turn it into a profitable group.

[av8rboyz]

would love to know where you all get your info from!!!!
As I understand the Virgin / bmi rumour is a strong one however both Virgin or bmi do not have the ability to take on or the other over .................however a merger would make good sence.

As for loosing money the board at bmi are more switched on than people realise!!
The only part of the operation thats loosing money is mainline shorthaul out of all bases ( disregard regional ). And the long haul operation has the biggest growth i.e. pax figures up 78% this feb compared to the previous year. bmi make profit on cargo alone without having to fill the flights. However every flight seems to be going FULL all the time on the long haul routes in all cabins!!

As for closing the long haul base in manchester if Virgin and bmi do merge then Virgin have been looking at opening a permanent manchester base for their florida route and were looking to do routes to the Carribean..........is that why bmi are expanding their routes to include the carribean toronto and are also thinking of south africa, india, china and the west coast of the U.S. within the next couple of years. As well as doing regional LH from other bases on the A319. Both airlines seem to be working together without making any big statments or treading on each other toes!! When Virgin joins Star Alliance we may see big changes as in BVA ( British Virgin Airlines ).!!

I do hope Virgin and bmi merge as this would make a great british airline that could then rival BA, AA and the other one world partners in the U.K.

[Digitalis]

Virgin does have the financial clout to take over BMI. The same is not true the other way round. It might be called a merger, but I doubt there'd be many BMI people on the combined board.....

It looks to me that BMI won't be turned around without significant investment, which is unlikely to be found from Lufthansa or SAS just now. A 'franchise' deal with Virgin would not produce that investment, so only a cash injection from Virgin (or whoever), combined with some serious re-focusing of the airline's efforts, would stop the rot.

Kestral1, good loads don't mean a route is profitable. Yield is what it's all about, and I'd guess that BMI's yield on MAN-based longhaul is pretty thin. Virgin, if they did take on BMI, would be likely to keep and even expand on BMI's longhaul out of MAN, at least for the holiday traffic. I wouldn't bet too much on East Coast destinations surviving, though!

[MarkD]

What would happen the 330s though? At least the common type rating would help the combining of the fleets - just seniority to worry about!