BMI warns of biggest loss in its history - FT
BMI British Midland, the second biggest airline operating at London Heathrow, has warned employees it will suffer the largest loss in its history this year.
Nigel Turner, chief executive, has told staff the group had to restructure as it seeks "to ride out what is probably the worst crisis the aviation industry has faced".
He warned the airline, which is shortly to be taken over by Germany's Lufthansa, expected to remain in loss in 2009 despite "further aggressive action on costs".
BMI would be "in intensive care for some considerable time", he said.
The disclosure of the rapid deterioration in the group's finances comes only four weeks after Lufthansa disclosed that Sir Michael Bishop, BMI chairman, had decided to exercise his option, agreed in a deal struck nine years ago, to force the German carrier to take over his majority stake.
Lufthansa, which already owns a stake of 30 per cent minus one share, will pay about €400m (£334m) for Sir Michael's stake of 50 per cent plus one share. The remaining 20 per cent stake in the lossmaking group is held by SAS Scandinavian Airlines, which also wants to dispose of its holding.
In a memorandum to the group's 5,000 staff, Mr Turner said: "Our financial results this year will produce the largest loss we have ever recorded by a considerable margin." BMI made an operating loss of £29m in 2001 and a pre-tax loss of £19.6m in 2002.
He said: "The combination of falling consumer demand and increases to costs in areas wholly outside of our control, like airport charges, makes our task extremely difficult." A previous agreement under which Lufthansa and SAS carried the bulk of BMI losses expired at the end of 2007.
Mr Turner also warned employees they should expect little relief from the Lufthansa takeover, which is expected to be completed in mid-January.
"Be under no illusions, they will not be prepared to sit back and watch us lose money," he said. "They will, and do, expect us to reshape the business to remove unprofitable flying to the greatest extent possible."
Mr Turner said BMI would freeze pay in 2010 and the directors would have no pay increase in 2009.
The airline would honour the terms of its present three-year pay deal, which included an increase of inflation plus half of 1 per cent in 2009, which would add costs of £7m next year and which the group could not afford, he said.
The airline was planning to cut capacity in its BMIbaby low-cost subsidiary by about 15 per cent next summer. It is cutting the fleet from 20 to 17 by returning aircraft at the end of their leases.
Lufthansa said earlier this month it would consider disposing of the BMIbaby business next year.