The latest twist in the Lufty takeover...

Lufthansa’s BMI bid hit by cash row - Times Online

With the decision of the European Commission on Lufthansa's takeover expected by May 14, isn't it too late now to start asking for more money? I thought it was pretty much a done deal.

Sounds like Lufty aren't too keen on the deal anymore?

I am fascinated by the news in the Sunday Times. If bmi are close to their CAA covenants they will be closely monitored by the CAA. It is a confidential process but would be known to any purchaser. If bmi are in breach the CAA have the power to revoke the operating licences. That would render the company far less valuable to say the least.

Whatever the situation LH will know the facts. Given the rumours about the level of loss in the overall bmi organisation last year (c 100 m) it would not be surprising if bmi was under regular CAA review. Current trading conditions must be vile for bmi with pressure on all fronts.

The other consideration is that of the EU. They did not rubber stamp the deal and have promised a preliminary ruling this week. But they must be concerned about the impact on competition at LHR. The first obvious indication of the future LH policy is the strengthening of services/frequencies between LHR and Germany. One would expect more of this at the expense of frequencies on other routes particularly on UK domestic routes. This has already happened and MAN will probably be next.

So if the first impact of LH ownership is to reduce current competition why should the deal be approved?

chipsbrand
 

So if the first impact of LH ownership is to reduce current competition why should the deal be approved?
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However, there is always the oft-repeated mantra that LH already holds a much higher proportion of slots at FRA than BA at LHR.

Also, the EU looks set to approve a suspension of the 80/20 rule. Not much concern for copmetition there.

If the EU block the deal, what other avenues are left for MB and LH ?

Would it be legal for LH to take the whole airline in house then restructure and re brand?

stormin norman
 

Would it be legal for LH to take the whole airline in house then restructure and re brand?
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Don't know about legalities but it sounds to me like LH think they've been stitched-up by SMB and are looking for a way to minimize the damage.

LHR may not be the wonderful hub it once was.

Sweetie76. It could be just that!

I can't see how SMB has "stitched up" LH?

They have a binding contract to buy SMB interest in bmi which was agreed years ago, SMB had no way of knowing when he entered that contract that the airline industry was going to face 9/11, $150 fuel and a world wide economic down turn, had things gone the other way i doubt that LH would have gone to SMB and offered to pay more!

There may well be a going concern clause, but even that won't cut any ice in an English court, bmi's balance sheet it very strong despite the £100m+ loss incured last year, even if bmi needs more capital it can always sell some assets (slots)

I doubt that LH could walk away even if they wanted to, they are contracted to buy SMB shares, of course SMB could release them from that undertaking by allowing LH buy out his option, eg give SMB say £300m and you can walk away, it might be cheaper for LH to do that!!

So i guess the saga will drag on a little longer for the long suffering bmi staff, but i can't see that SMB having much downside risk in playing it long, he seems to hold most if not all the cards.

A strong balance sheet helped by the having put the slots onto it as assets, which I understand is unusual.

Strong balance sheet?

I hear there are £700 million of off-balance sheet liabilities?

:eek:

I wonder if LH are trying to persude the EU to block the deal.

SR71
 

Who knows? LH directors on bmi's board must have signed of the accounts

IMHO bmi have spent far too long focused on protecting slots rather than building an airline.

What I can't understand is that if the price of the option(s) in 2009 was fixed in 1999, what incentive was there to do business in the interim 10 years?

:confused:

because - I would guess - the price of the option was not a number but a formula based on future revenue and / or profits.

I hear there are £700 million of off-balance sheet liabilities

If you add that to the £300 mil that LH are paying for the airline, looks like like they've been well and truly done.

A billon quid for an airline that's loosing a hundred million a year? Bish is one smooth operator:ok:

It is interesting to see that one of the city analysts is suggesting that a major slot sale will be the way in which bmi is recapitalised to allow the take-over to go ahead. It assumes that there are buyers for the slots and that Lufthansa will not try to find more ways of cutting the price which they are obliged to pay to SMB for taking over the ariline in the meantime. I think both are probably unrealistic assumptions.

Lufthansa have received a nasty shock - the state of the bmi business as a whole is far worse than they had been led to believe. It is in no small part due to some matters being kept off the balance sheet and P&L including reserve pots for various items like aircraft and engine overhauls which should exist but don't. It is for these reasons that the auditors are refusing to sign off the accounts to say that bmi is a going concern, and that is the basis on which Lufthansa are trying to renegotiate the take-over.

On MXP-LHR route operated by BMI the crew are from LH or BMI? The service onboard is the same of Lufthansa Italia or different?

Flightrider,

Please don't take this the wrong way, but have you got ANY evidence to back up what you're saying? Anything at all?

Lufthansa haven't received a nasty shock, they have had people on the bmi board for years. Any shock that they may receive is, therefore, of their own making.

Flightrider
 

It is well known that bmi short haul network has preformed poorly over the last 2-3 years (since the NBM was introduced,reducing the quality of service but not the price) the slow down in the UK economy since this time last year has been the killer punch together with the high fuel costs accross the network. I doubt very much that the Germans have had a nasty shock and whilst the value of what they are contracted to buy may have fallen, the deal is the deal, unless it can be shown that (and proven) that bmi have mis-represented the true state of the business.

This off balance sheet stuff is crap, there are many items that are off balance sheet because they don't belong there, lease's often among them and to be fair the value of slots in most companies, but not bmi who have included it with their boards and auditor approval

In operational terms this deal is done and it is just the respective shareholder's positioning over the money, neither want to walk away, niether can in any event unless someone has been very naughty, again unlikely.

The formal EU ruling will be out this time tomorrow and that will clear LH to go ahead with the purchase. Any loose ends should be sorted by month end