The deal between Virgin and BMI seems to be dead in the water for now. My own guess is that it will not be ressurrected until Sir Michael Bishop retires. I also believe that, whatever the public statements may have been, the deal was seen by Virgin as a takeover of BMI by Virgin Group, and by BMI as a merger between two equals. I think therein lay the major sticking point!
While there may be certain commercial 'synergies'
between the airlines, their commercial philosophies and attitudes are too far apart to be easily bridged. In fact, the airlines reflect quite accurately the differences in their respective majority shareholders!