Lifo/balpa= Think Deck Chairs & Titanic
From The Times November 11, 2009
Financial crisis could force bmi out of business in under a year
British Midland (bmi) has admitted that it may not be able to continue as a going concern beyond next year in the face of an acute funding crisis at the airline.
The full extent of bmi’s difficulties are revealed in previously unpublished financial accounts seen by The Times. The document reveals that bmi, which employs 4,800 people, needs £190 million of additional funding by the end of next October.
Lufthansa, the German flag carrier that took control of bmi this year, has pledged £95 million to that target. The Derby-based airline hopes to make up the rest by selling its lucrative slots at Heathrow.
The airline’s funding situation is sufficiently precarious for Deloitte, its accountant, to warn that there is uncertainty about whether the airline can carry on. The accounts were signed off on October 23 and Deloitte made it clear that there was no guarantee Lufthansa would stand behind its British subsidiary or give it further financial support.
In addition, bmi has revealed that its pre-tax losses last year were £155.6 million, compared with a profit of £15.5 million the year before. That loss is more than 50 per cent higher than the £99.7 million that bmi had previously claimed it lost in 2008. The lower figure was still being used on the company’s website last night.
The airline said that the discrepancy was caused by late audit adjustments. It also said in its accounts that it was in “significantly advanced” talks with several airlines to sell Heathrow slots.
Because of the uncertainty over how much that sale could raise and whether Lufthansa was willing to provide more cash, the directors of bmi were forced to give a grim assessment of its prospects.
They said: “The achievability of the forecast, the ultimate level of group funding and timing and value of slot sales indicate the existence of material uncertainties, which may cast significant doubt about the group and company’s ability to continue as a going concern and, therefore, the group and the company may be unable to realise their assets and discharge their liabilities in the normal course of business.”
Much of bmi’s value lies in its ownership of 11 per cent of the landing slots at Heathrow. Slot pairs have traded for tens of millions of pounds in the past but their value has fallen in the recession. The airline has cut the value of its slots by 20 per cent from £770 million to £616 million.
Lufthansa has also forced the airline to stop listing the slots as assets in its balance sheet. This accounting change resulted in bmi reporting a total loss of £930.6 million since its previous annual report.
Lufthansa took control of bmi when Sir Michael Bishop, the former chairman, exercised an option to sell his 50 per cent stake to the Germans for about £220 million. The deal was completed in June. Lufthansa then put bmi up for sale and had discussions with British Airways and Virgin Atlantic but decided that the offers were too low. The German carrier brought in Wolfgang Prock-Schauer as chief executive and restructuring began last week when bmibaby, the low-cost operation, said that it would cut 25 per cent of its workforce and reduce its fleet from 17 aircraft to 12.