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!