The Lufthansa / BMI Thing (merged)
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My understanding was the deal would be adjusted for inflation at any time in the future, plus no doubt the price was set with the potential for transatlantic as despite the open skies agreement this has so far proven to still only to be potential. Financial clout to fund route expansion and absorb the probable start-up losses is likely the most pertinent question as to whether bmi would ever go transatlantic with its own aircraft and retain its independence.
Good synopsis of the situation from FT back in april.
http://search.ft.com/ftArticle?query...4&ct=0&page=14
Good synopsis of the situation from FT back in april.
http://search.ft.com/ftArticle?query...4&ct=0&page=14
Mach 3
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6chimes,
Unfortunately, as I understand it, and contrary to what the Telegraph article suggests, a call option obliges the seller to sell if the buyer of the option decides he wants to buy. The buyer, however, is not obligated to buy.
The call option is of value to the buyer if the underlying investment is perceived to be increasing in value.
The converse is true of a put option.
However, if my understanding is correct, this means that, at the time the deal was struck, SMB perceived that the value of bmi would decrease by the time the options reached their exercise dates. This, inspite of getting LH onboard? Doesn't make sense. Isn't he betting against his own company?
It seems incongruous as he must have thought that Open Skies would have a significant effect on the value of the company and that this would materialise within 8 years that have elapsed since the deal was struck....
The options can be exercised at the original price per share....which must grossly undervalue the company now that those LHR slots can be used for trans-Atlantic traffic.
I'm pretty sure the premium paid by LH for the option doesn't even come close to making up the difference, and even that was further eroded by the premium SMB paid for his put option!
So no way is SMB going to exercise his put option and no way does he now want to let LH get to the point where they can exercise their call option...both of those will lose him humungous quantites of money.
I don't know what safeguards LH had built into the contract to avoid disposal of the company prior to them being able to exercise their option? But then that is the value of this type of option.....your exposure is limited to the premium.
If my understanding is correct, SMB is boxed into a corner, and unless a pre-emptive deal is struck, the bmi group is bound to come under new ownership in the next 12-18 months!
Someone correct me if my understanding is wrong....please!
Unfortunately, as I understand it, and contrary to what the Telegraph article suggests, a call option obliges the seller to sell if the buyer of the option decides he wants to buy. The buyer, however, is not obligated to buy.
The call option is of value to the buyer if the underlying investment is perceived to be increasing in value.
The converse is true of a put option.
However, if my understanding is correct, this means that, at the time the deal was struck, SMB perceived that the value of bmi would decrease by the time the options reached their exercise dates. This, inspite of getting LH onboard? Doesn't make sense. Isn't he betting against his own company?
It seems incongruous as he must have thought that Open Skies would have a significant effect on the value of the company and that this would materialise within 8 years that have elapsed since the deal was struck....
The options can be exercised at the original price per share....which must grossly undervalue the company now that those LHR slots can be used for trans-Atlantic traffic.
I'm pretty sure the premium paid by LH for the option doesn't even come close to making up the difference, and even that was further eroded by the premium SMB paid for his put option!
So no way is SMB going to exercise his put option and no way does he now want to let LH get to the point where they can exercise their call option...both of those will lose him humungous quantites of money.
I don't know what safeguards LH had built into the contract to avoid disposal of the company prior to them being able to exercise their option? But then that is the value of this type of option.....your exposure is limited to the premium.
If my understanding is correct, SMB is boxed into a corner, and unless a pre-emptive deal is struck, the bmi group is bound to come under new ownership in the next 12-18 months!
Someone correct me if my understanding is wrong....please!
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No - that seems right.
Regarding the call option held by Lufthansa - I had not previously seen any information on it until now - only the put option held by the bmi owners.
SR71's assessment seems pretty good.
Regarding the call option held by Lufthansa - I had not previously seen any information on it until now - only the put option held by the bmi owners.
SR71's assessment seems pretty good.
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Whilst I see your point I still do not believe that SMB would not have covered every angle. Having worked at bmi for many years I have seen how it works. At every point that it looked liked bmi would come out the loser, bmi had something in place to change it. I don't particularly like the way the company is run but the one thing you can be certain of is this: If SMB has a personal interest that could affect him adversely or postively then he always comes out on top. This man does not take risks. The airline has not progressed or grown at the rate it could have because of his reluctance to risk his personal money. I cannot see any way that the LH of 1999 would have got the better of him in the fine print.
6
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6 chimes it's not a question of whether LH has got the better of him or not. What SR-71 says is pretty much how I read the situation and it's well documented that Lufty has a short window of opportunity to call starting Dec'08. SMB is mortal like the rest of us and he's getting on a bit and he obviously realises or he wouldn't have negotiated this type of agreement nearly a decade ago. He has done well but Lufty are preparing to take control of bmi in the not too distant future...
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Thanks P Style for the Times article. Obviously based on the same sources as the Telegraph which came out a week later.
I think SR has hit it nicely on the head. bmi's published figures have been getting better each year, recently, and Open Skies is the icing on the cake.
LH are obviously in acquition mode, see new thread on Jetblue, so I think it's interesting times ahead, whichever way it goes.
Still with the new routes there's lots of time to speculate
Roll on next Christmas
I think SR has hit it nicely on the head. bmi's published figures have been getting better each year, recently, and Open Skies is the icing on the cake.
LH are obviously in acquition mode, see new thread on Jetblue, so I think it's interesting times ahead, whichever way it goes.
Still with the new routes there's lots of time to speculate
Roll on next Christmas
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6chimes,
Agreed.
But how much money do you think SMB has "taken out of the business(es)" in the interim period through the creative accounting practises that bmi accountants are allegedly known for?
The other point is as teamax alludes to....
How the hell does anyone know what else the deal involves anyway?
Agreed.
But how much money do you think SMB has "taken out of the business(es)" in the interim period through the creative accounting practises that bmi accountants are allegedly known for?
The other point is as teamax alludes to....
How the hell does anyone know what else the deal involves anyway?
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SR71
You can be sure that there is an account somewhere (probably several) that contains a huge pot of cash. But will he be happy to walk away with only that if he can get more? 
One thing we are all agreed upon is that bmi will see some huge changes over the next 18 months or so. How clever SMB has been will become apparent then.
I hope that whoever gets their hands on us changes the petty management culture and lets us get on with the job without displaying an obvious lack of knowledge in how an airline actually needs to be run. By that I mean having enough engineers to fix the niggles that eventually cause the a/c to go tech for hrs or days. Operating a/c properly and not trying to squeeze every charter money making opportunity in, at the expense of the a/c required 'downtime' so that the a/c can be maintained. Having enough crew to cover the operation without relying on the staff to clean up the shortfall. Oh the list could go on ...................
6
One thing we are all agreed upon is that bmi will see some huge changes over the next 18 months or so. How clever SMB has been will become apparent then.
I hope that whoever gets their hands on us changes the petty management culture and lets us get on with the job without displaying an obvious lack of knowledge in how an airline actually needs to be run. By that I mean having enough engineers to fix the niggles that eventually cause the a/c to go tech for hrs or days. Operating a/c properly and not trying to squeeze every charter money making opportunity in, at the expense of the a/c required 'downtime' so that the a/c can be maintained. Having enough crew to cover the operation without relying on the staff to clean up the shortfall. Oh the list could go on ...................
6
6 chimes
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I don't know why charter work doesn't go to WW?
Most of their a/c seem to be sitting around for long periods during the winter.
30-40 hrs month flying for WW crews at the moment...
Most of their a/c seem to be sitting around for long periods during the winter.
30-40 hrs month flying for WW crews at the moment...
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Hey. I came over to baby to get away from charter !
The programme has some slack at present to allow for maintenance but come the new year, that slack vanishes ! And if you really think that the crew are on 30-40 hrs per month, then I can show you plenty that aren't !
Anyway, can't see CB letting his charter pax sit on our seats !
The programme has some slack at present to allow for maintenance but come the new year, that slack vanishes ! And if you really think that the crew are on 30-40 hrs per month, then I can show you plenty that aren't !
Anyway, can't see CB letting his charter pax sit on our seats !
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Baby slack
Not much at BHX, seven based with at least two doing 8 sectors and the
other five doing six. Even at the weekends the least is 4 sectors and they are probably 2 hour plus.
All since Madrid started and Geneva recommenced but for a winter schedule these old babies work hard (the craft I mean
) plus Krakow
to come in February, which is another loooong sector. Crew work hard
as well, as SLF I can vouch for that.
Pete
other five doing six. Even at the weekends the least is 4 sectors and they are probably 2 hour plus.
All since Madrid started and Geneva recommenced but for a winter schedule these old babies work hard (the craft I mean
) plus Krakow to come in February, which is another loooong sector. Crew work hard
as well, as SLF I can vouch for that.
Pete
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PeteOlton,
You are obviously at the wrong WW base then!
I have heard the argument that SMB is endeavouring to manoeuvre the company to a position where the balance sheet looks attractive enough to entice LH to exercise their call option. This is apparently the reason for the cancellation of the A330 orders and other such cost reducing moves?
However, this does not make sense to me, as SMB can exercise his put option regardless of the state of the company balance sheet. LH will be obliged to buy.
Of course, to endeavour to get LH to exercise their call option, the balance sheet must look attractive.
But why does SMB care because either way the amount of money he stands to make is fixed? I don't suppose he was financing the A330's personally!
Imagine , however, the bargaining power SMB will have with BA or VS (or whoever), if he threatens to exercise his put option and place ~15% of LHR slots into LH's hands.
Conversely, how much will LH pay over and above what they'd pay for the company if it got to the window of opportunity for them to exercise their call option, in order to avoid BA or VS getting the slots?
In these cases, although the value of the slots probably far outweighs the value of the other company "assets", it is probably in his best interests that the books at least look good.
I think he is quite happy with his position either way, although I am sure there is more to the contract than is common knowledge.
From a pilot point of view, I just hope there are no redundancies.
Anyone know anything more detailed?
miles_offtarget,
As for FlyBe acquiring bmibaby, they have £3 billion worth of aircraft on order. Someone is bankrolling them quite significantly. bmibaby isn't worth more than it cost EZY to acquire GB, so its a distinct possibility from where I'm sitting.
This year FlyBe make a profit inspite of the nightmare integrating BA Connect.
And yet bmibaby...what have they announced?
Read the Cardiff thread and bmibaby are under-estimating their competition at CWL in 2008. I'd not be surprised if they pulled out of CWL eventually and brought the a/c back to BHX/EMA.
Its strategy is forcing it into a niche market because by definition if you do not expand in an expanding market, you are shrinking...as is your market presence, as is your appeal, as is your bargaining power...
You are obviously at the wrong WW base then!
I have heard the argument that SMB is endeavouring to manoeuvre the company to a position where the balance sheet looks attractive enough to entice LH to exercise their call option. This is apparently the reason for the cancellation of the A330 orders and other such cost reducing moves?
However, this does not make sense to me, as SMB can exercise his put option regardless of the state of the company balance sheet. LH will be obliged to buy.
Of course, to endeavour to get LH to exercise their call option, the balance sheet must look attractive.
But why does SMB care because either way the amount of money he stands to make is fixed? I don't suppose he was financing the A330's personally!
Imagine , however, the bargaining power SMB will have with BA or VS (or whoever), if he threatens to exercise his put option and place ~15% of LHR slots into LH's hands.
Conversely, how much will LH pay over and above what they'd pay for the company if it got to the window of opportunity for them to exercise their call option, in order to avoid BA or VS getting the slots?
In these cases, although the value of the slots probably far outweighs the value of the other company "assets", it is probably in his best interests that the books at least look good.
I think he is quite happy with his position either way, although I am sure there is more to the contract than is common knowledge.
From a pilot point of view, I just hope there are no redundancies.
Anyone know anything more detailed?
miles_offtarget,
As for FlyBe acquiring bmibaby, they have £3 billion worth of aircraft on order. Someone is bankrolling them quite significantly. bmibaby isn't worth more than it cost EZY to acquire GB, so its a distinct possibility from where I'm sitting.
This year FlyBe make a profit inspite of the nightmare integrating BA Connect.
And yet bmibaby...what have they announced?
Read the Cardiff thread and bmibaby are under-estimating their competition at CWL in 2008. I'd not be surprised if they pulled out of CWL eventually and brought the a/c back to BHX/EMA.
Its strategy is forcing it into a niche market because by definition if you do not expand in an expanding market, you are shrinking...as is your market presence, as is your appeal, as is your bargaining power...
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SR71
This is apparently the reason for the cancellation of the A330 orders and other such cost reducing moves?
When we got our hands on bmed, again the bods at the top had the shock of their lives when they found out that their 320/321's were not the same as ours. NT wanted to move crew seats that are in the cabin of the 321 until he was told several times why he couldn't. We have even had senior managers on flights that didn't even know what a/c they were flying on! There is absolute chaos going on at the moment as the reality of the intergration becomes more apparent. The unexpected costs are causing cost cutting decisions to be made which are leaving the crew without the necessary training to feel safe on the new a/c they are being asked to operate. Behind the scenes I think there are some very anxious people at the moment.
6
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We're still not aware of how much bmibaby are worth, and whether or not subsidiaries are included in the put/call option to Lufthansa. It's worth considering despite the fact there is an expensive fleet renewal required over the next few years, and that all of WW's bases face competitition from other LCCs with this predicted "blood-bath" on the way, that bmibaby carries a large percentage of the bmi group's pax and with the exception of a hiccup in 2006, is well on the way to profitability or at least breaking even in 2007.
Purely on grounds of speculation if we were to say bmibaby will be put on the chopping block, it's quite hard to find a suitor amongst the big 4 LCCs. easyJet are focused on their acquisition of GB Airways and are moving toward an all Airbus fleet. Although both airlines have similar business models, why would EZY want the complication of taking on their ex-733s? flybe again seem to have a suitable backlog of a/c and the two airlines' route networks seem to fit well, but after taking on BA Connect and moving down from a complex to 2-type fleet, can they afford to take on another airline and a fleet of 737s? Air Berlin are massively scaling back in the UK, focusing on Germanic countries and Spain. Finally, Ryanair couldn't gain anything from us and are committed to organic growth.
Purely on grounds of speculation if we were to say bmibaby will be put on the chopping block, it's quite hard to find a suitor amongst the big 4 LCCs. easyJet are focused on their acquisition of GB Airways and are moving toward an all Airbus fleet. Although both airlines have similar business models, why would EZY want the complication of taking on their ex-733s? flybe again seem to have a suitable backlog of a/c and the two airlines' route networks seem to fit well, but after taking on BA Connect and moving down from a complex to 2-type fleet, can they afford to take on another airline and a fleet of 737s? Air Berlin are massively scaling back in the UK, focusing on Germanic countries and Spain. Finally, Ryanair couldn't gain anything from us and are committed to organic growth.
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Could there be a fit between BMI Baby and Jet2? They (Jet2) have little presence down south and with the arrival of Easy and Ryanair at MAN it could be a way to hit back?
Pure speculation obviously.
Pure speculation obviously.
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Yeah...let's go and buy JET2 ! I'm sure my friends in their Ops/crewing would be delighted to back in the bmi set-up !!?!
TBH....nobody on these boards has any idea of what's going to happen in the next 18-24 months, so we can all speculate away to our hearts content !
All I do know is that SMB is nobodys fool and I bet, if he actually reads these boards, is quietly chuckling to himself.
TBH....nobody on these boards has any idea of what's going to happen in the next 18-24 months, so we can all speculate away to our hearts content !
All I do know is that SMB is nobodys fool and I bet, if he actually reads these boards, is quietly chuckling to himself.
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bmibaby couldn't afford to get their hands on Jet2. The Dart Group is a publicly listed company making them more difficult to integrate. Although consolidation to form stronger airlines is definitely the way forward, I can't see LS/WW happening any time soon.