Lufthansa to sell BMI stake.

[brakedwell]

This article in today's Telegraph will fuel the rumours of a Virgin Atlantic takeover.

Lufthansa has another go at bailing out of Bmi
By Alistair Osborne, Associate City Editor_(Filed: 25/01/2005)

German flag-carrier Lufthansa is trying again to engineer the sale of Bmi British Midland in a bid to get out of a secret shareholder agreement which could force it to buy the UK airline this year.

Lufthansa, which owns 30pc minus one share of Bmi, has approached Virgin Atlantic and BA offering the airlines its stake. The timing is significant in what is set to become an aviation poker game.

Lufthansa acquired its initial 20pc stake in Bmi for £91.4m in 1999, in a deal valuing Bmi at £457m. It raised its holding to just under 30pc.

At the time of the 1999 deal, Lufthansa signed a shareholder agreement with Bmi chairman Sir Michael Bishop, 63, who controls 50pc of the airline plus one share. Scandinavian carrier SAS owns the other 20pc. The agreement, thought to run for about 10 years, gives Sir Michael a "put" option, enabling him to sell his controlling stake to Lufthansa for about the same price as it paid for its shares in 1999. This would value the holding controlled by Sir Michael at £229m.

It is understood that 2005 is the first year when Sir Michael can exercise this option. He can exercise it later, though the price is said not to be "materially different", should he wait. Yesterday, Sir Michael would only say: "I have never discussed the shareholder agreement and I don't intend to now." Asked if he had any plans to sell Bmi, he said: "You are asking questions I have no intention of answering."

Alongside the shareholder agreement, Bmi, Lufthansa and SAS also signed an operating joint-venture for routes between the UK, Germany and Scandinavia. Revenues and costs are pooled, with Lufthansa taking the biggest share of profits and losses. This agreement has proved expensive for Lufthansa, whose new chairman and chief executive, Wolfgang Mayrhuber, wants to offload the Bmi stake.

Last year, Lufthansa reported €76m (£53m) losses from its interest in Bmi, including a €66m goodwill write-off, up from €66m losses the previous year when Lufthansa wrote down €53m. Lufthansa hopes a putative deal to sell its stake and possibly SAS's would trigger a take?over of Bmi, enabling it to get out of the shareholder agreement.

Virgin, which held abortive merger talks with Bmi in May 2003, and BA are the logical buyers. Bmi has 14pc of Heathrow take-off and landing slots and a short-haul network. BA, with 40pc of the slots, would face competition issues buying Bmi.

For years, Sir Michael has waited for an "open skies" pact between Europe and America, which would increase the value of Bmi's Heathrow slots but such a politically sensistive deal may still be years away.

A Virgin spokesman said: "We have always said we think there is a deal to be done between ourselves and British Midland."

A BA spokesman said: ``We receive many approaches each year from potential sellers but have a long-standing policy of not commenting on speculation about possible investments."

Asked if it was trying to sell its Bmi stake, a Lufthansa spokesman said: "It's pure speculation. We have no comment to make."

[Dash-7 lover]

Interesting reading.......do BMI Regional and BMI Baby stand alone financially within the group???

[barry lloyd]

Doesn't ' it's pure speculation. We have no comment to make ' normally mean 'yes' in such situations?
The figures as quoted would certainly make miserable reading to the beancounters @ LH.

[akerosid]

I can't see any point in BA buying them; the competition rules would probably require them to get rid of any slots they would acquire (which would presumably be the main objective for BA); also concerns re competition on domestic routes.

If, on the other hand, RB were to buy LH's share, what could MB do about it? Probably nothing. It appears from Virgin's comments that it would like to buy BD, but MB is the obstacle. If they had that 30% shareholding, it would be a message to him: "sell now and get the benefit; wait and we'll just buy your share after you're gone; we can wait ... "

[5415N]

Unfortunely , whoever ends up aqquiring BMI (either BA or VS) will probably only asset strip the company and that will be the end of BMI:( V sad

[lexxity]

Oh god, here we go again..... shall we just re-name this thread now? :ugh:

Will we be on red or on the dole queue. Anbody who doesn't think RB will buy the stake is dreaming. It's what he's been wating for I'm sure.

[Digitalis]

If I understand this article correctly, Lufthansa would have to buy Bish's stake for £229m (or so), before then offering its total holding to the market. As the airline's market value is probably considerably less than that, the benefit for Lufthansa looks, erm, limited! Alternatively, LF could sell its 30% stake for pennies, but Sir Mike would still control the airline, so where's the incentive for a buyer?

If VS could justify the investment to buy out Lufty's plus SMB's stakes, would they be able to utilise the slots owned by BD, or would they be made to give many of them up? I can't see VS wanting to continue to run the loss-making full-service side of the airline in the face of increasing loco competition, and I assume that Baby, with its own AOC, would be easily floated off (probably before any sale to VS), so what would be left - and how would it fit in with Virgin's premium long-haul market? I don't see any real benefit for VS in owning the rump of a short-haul airline - and it already owns a European loco.

I can't help feeling that a takeover by VS would only be an exercise in acquiring the slots owned by BMI and, if the regulators were to make that ambition difficult, VS would walk away from the deal and then bid on the open market for the slots as BMI gradually sells them off whilst trying to stay alive. Whatever, I can't see any good for BMI out of the deal.

[Konkordski]

You'll notice, of course, that the Telegraph has managed to concoct this story without mentioning a single source.

Which makes the story nothing more than "this will happen because the Telegraph says so".

Amateur journalism. :rolleyes:

[Max Angle]

If LH want to sell their share I would have thought the most likely buyer is Sir M. himself. I suspect he has a first refusal clause written into the contract anyway and would no doubt be able to but it back for less than he sold it. I don't think he ready to give up his train set yet.

[INKJET]

I think you have hit the nail on the head, Bish is no fool and would have no problem in finding the cash. It is SAS & Luffty that holds back bmi growth (and baby and regional) and some of his half witted managers as well........

As Bush once said " bring it on...."

Cheers

Burt

[barry lloyd]

Konkordski

I hear what you say about the story not having a source, but in my experience, these ideas are often 'floated' over an expensive lunch with the organ concerned, and put into print to see what the reaction is amongst investors, the City etc. The current government does it all the time!

[acbus1]

It is SAS & Luffty that holds back bmi growth (and baby and regional) and some of his half witted managers as well........
Don't understand the first part of that. How does LH and SAS covering bmi's enourmous losses of the last few years constitute a hindrance?

Are LH and SAS blocking the longhaul bids from LHR?

How exactly are they holding back growth?

Where would that growth be?



The second part I agree with. bmi survives despite management incompetence on an epic scale, from the top to the bottom at Toad Hall. Heathrow slots have been the only thing preventing the whole sorry mess from sinking into oblivion since the early eighties. Now that the lo-cost carriers are neutralising LHR shorthaul profitability, we're seeing the true colours of bmi.......a loss making shambles.

[Little Blue]

Yawwwwwwwwwwwwwn....
I had promised myself that I wouldn't take the bait and reply to any of your bitter and twisted rants.....but it would be shame to let you down.
More anti-company crap from a man who should have been
pensioned off years ago.
Oh, sorry, I forgot, I'm one of those niave and biased posters that you so despise.
Maybe it's about time that you changed yr user name, again, if you get my drift.

[b mi baby]

I agree Little Blue - However this WHOLE thread is just ONE BIG yawn. It is like how many times can we speculate on speculation. Just do a search on bmi and Virgin and you can have the pleasure of reading some of the greatest drivel ever posted on these forums!

[b.borg]

Scandinavian Airlines are getting in on the act as well.

link (http://borsen.dk/english/dailynews/dailynewsitem?single=794)

SAS could pocket billions on sale of British airline company
The Scandinavian airliner SAS is on the verge of raking in billions of Danish Kroner, provided that the sale of the British airline company BMI -- formerly known as British Midland -- falls into place. SAS owns 20 percent of BMI and, like the German airliner Lufthansa, is ready to sell its block of shares. "As long as we can get a good price, we are absolutely willing to sell," says Sture Stølen, head of international relations at SAS. Analysts and British media both say that a sale is looming. Virgin is very interested in buying.
Well, no smoke without fire :hmm:
I wonder if R.B. has pyromantic tendencies :E

[I.C.Nosignal]

it amazes me how much energy one sad individual can expend on a personal crusade to nowhere. No one would(I hope!) be glad to see their colleagues out of work and anyone with any integrity would not wish to see any company fail in our industry, bmi will survive because, despite the childish rantings of a very few bitter and twisted posters (you know who you are!!), there are many bmi employees including managers who are extremely competent, professional and most importantly wish to see bmi survive, succeed and build on the achievements of the past 40 years or so I would be interested to know what your attitude to bmi would be if you had not been canned!! GET OVER IT!!

[Digitalis]

Notwithstanding the protestations by some here, who are presumably BMI employees unhappy with the possibility of there being a flash sale of the company, there does seem to be more than a hint of smoke in these stories. Attributable individuals from both Lufthansa and SAS are saying openly that they'd like to sell their respective stakes in BMI, and the Telegraph appears to have some detail of the contractural arrangements between Sir Michael and Lufthansa. So it seems likely that something is afoot!

Yet I still don't see the benefit to Virgin in taking on BMI as a going concern - at least as it stands now. So I refer back to my earlier post:

If I understand this article correctly, Lufthansa would have to buy Bish's stake for £229m (or so), before then offering its total holding to the market. As the airline's market value is probably considerably less than that, the benefit for Lufthansa looks, erm, limited! Alternatively, LF could sell its 30% stake for pennies, but Sir Mike would still control the airline, so where's the incentive for a buyer?

If VS could justify the investment to buy out Lufty's plus SMB's stakes, would they be able to utilise the slots owned by BD, or would they be made to give many of them up? I can't see VS wanting to continue to run the loss-making full-service side of the airline in the face of increasing loco competition, and I assume that Baby, with its own AOC, would be easily floated off (probably before any sale to VS), so what would be left - and how would it fit in with Virgin's premium long-haul market? I don't see any real benefit for VS in owning the rump of a short-haul airline - and it already owns a European loco.

I can't help feeling that a takeover by VS would only be an exercise in acquiring the slots owned by BMI and, if the regulators were to make that ambition difficult, VS would walk away from the deal and then bid on the open market for the slots as BMI gradually sells them off whilst trying to stay alive. Whatever, I can't see any good for BMI out of the deal.

Have I got it wrong? Is this all likely to end in sweetness, light and world domination for BMI? Or are we seeing the beginning of the end of BMI as a - relatively - independent operator, destined to become to Virgin what Caledonian was to BA?

[INKJET]

SAS & Luffty holding has been a mixed blessing, but right now it acts as a brake on all of the groups activities

Baby is capped at 16 aircraft and does not operate any flights to German or Scandic destinations

Regional would love to do Munich out of Leeds and EDI and has the slots, but is blocked by Luffty likewise SAS blocked CPH out of LBA.

The revenue and costs share on LHR routes to Germany and Scandic countries was a good deal (when you could get away with charging £800.00 return for Y class) but Luffty and SAS have far higher cost bases than bmi, in any event the deal that bmi had in terms of support ends this spring, which is why the blue sky project was so important.

I hear that airframe No 4 on the 330 fleet will be the one that was diverted to Emirates post 9/11 and that it will be re fitted with the "the Bussiness" seats in rows 1 to 4, these seats are still in storage in a bmi hanger i am told

This will then do the India routes from LHR


Bish holds the extra share so given that bmi is a private company he can do much as he pleases. he is still youngish for an airline chairman and in good health. There are no hiers to his fortune so i can\'t see any reason why he would wan\'t to get out now. the LHR slots are worth far more than the company and in another 10 years we might see another runway at LHR which would change the picture as would a new open skies deal that (Queen Mandelson ex of Hartlepool) is working on as EU transport minister.

VS would love to merge and are keener to do so than bmi so any deal will have to protect SMB interests and wishes (these might not be the same as the pilots that said!!)

Yes there are problems in bmi, but they have survied with out a penny of state aid, weren\'t given Concorde for free and compared to the dosh that Sebena, Air france & others have had, then they(bmi) have provided a good level of service for joe public and a lot of pilots for very many years, but it is time to move on.

Cheers

Burt

[Digitalis]

Bish holds the extra share so given that bmi is a private company he can do much as he pleases. he is still youngish for an airline chairman and in good health. There are no hiers to his fortune so i can't see any reason why he would wan't to get out now.

That pretty much coincides with the impression I had, but there seems to be no doubt that Lufthansa and SAS want out. So who's going to buy in? Can Bish afford to buy back the company? Is there any future in Virgin buying in and leaving control of the company to Bish? Could we see a renewal of the proposal to merge the companies (using Virgin's capital) and have Bish run the joint deal? What in hell is happening??!!??

[Little Blue]

Maybe we should ask security.
They always seem to know whats cracking off...

[lhr_slots]

Here's a scenario...

Bishop uses his 50%+1 share to sell himself bmibaby for £1 and exercises his put option to extract £229m from LH for the rest of bmi. So, Bishop can still play with airplanes for a few more years.

bmi is now no longer majority owned by a UK citizens, so are kicked off US, Canada and India - countries that do not recognise EU designation.

LH are left with an unprofitable UK shorthaul airline feeling a bit like BMW with Rover.

Dump the thing before it loses them any more money and face, probably to VS.

You heard it here first.

[acbus1]

One of these days I'll get an intelligent answer to some of the questions I raise, or an intelligent response to some of my points.

Instead a small handful of individuals can only manage to hurl personal insults or invent "what they know" about me.



OK, lets try a simple one then....

If bmi are as wonderful as some here seem to think, then how come both SAS and LH are so keen to ditch their share?

[max nightstop]

Just a theory AC...

If they keep the 30pc, Lufty are faced with the possibility of being forced to pay way over the odds for the rest. Regardless of how wonderful bmi are, the rest of Bish's share is not worth what they could be forced to pay.

I think i might make a noise about selling just to stop any thoughts anyone might have about making me do the buying.

If Lufty DID sell, then what would SAS look like, holding 20pc, and staring at the prospect of being the smallest partner, in a triumverate not of their choosing. What's the point, they'd want to be out too.

[b mi baby]

then how come both SAS and LH are so keen to ditch their share?

Because their management (due to their own incompetence) allowed Sir MB to negotiate a deal which protected his interests. They are losing money like everyone else and LH in particular are VERY exposed as a result of the 'put' option that Sir MB might take advantage of at any time. I would want rid of my share as well under the circumstances. Providing Sir MB keeps 50%+1 share it matters not one jot who the other 50%-1 share belongs to. Personally I would like to see him take it all back cos bmi is a company that is on the way up again.

BTW - ask an intelligent question rather than just ranting and you might get an intelligent asnswer.

[max nightstop]

Bit harsh on the Lufty management "B mi Baby" They took a gamble on the value of their investment going up and got it wrong, a few unfortunate world events may have influenced this value slightly.

As for bmi on the way up, i'd like to think so but what makes you so sure? Particularly if you are in the part which your handle suggests...leaderless and poised for industrial action?

[acbus1]

Because their management (due to their own incompetence) allowed Sir MB to negotiate a deal which protected his interests.
Or (more intelligently) ----

Because their management assumed they were'nt dealing with incompetents.

A lesson Sir Dickie will learn unless he obliterates the bmi management when/if he takes over. Only one way to deal with cancer..........

[Little Blue]

AC...
Who's inventing anything.....
How many times have you re-invented yourself on here?
pot kettle noir.

Whether Lufty or Sas want to keep their stake or not
is not within our control, and however much we like/not like it,
there's sweet FA that we can do to change the situation.
.
Que sera....etc etc..

;)

[Vol7]

Max N/Stop - Particularly if you are in the part which your handle suggests...leaderless and poised for industrial action?
bmibaby has a leader keep up with the times things change it doesn't mean anything more
-
As for Industrial action we will just have to wait and see but it seems funny that the Pilots (The highest paid) are the only ones who have not accepted the pay deal in the whole group it is nearly time for this years review and last years is still being argued I for one would be very surprised if we saw any action at all
-
Back to the subject in hand
-
Acbus you do come across as a very bitter man are you an ex employee of bmi's by any chance
The fact of the matter is LH are losing money (16M a year I believe) to bmi and seeing no return
I agree that bmi is on its way back however and Long Haul could be their saviour if the India routes pay off as planned

[Stifler]

I am starting to wonder- where was acbus1 at 0410 on Saturday 22nd?

[chipsbrand]

It is interesting to recall that when bmi joined Star and sold shares to LH back in 2000, I think it was, the bmi management with the exception of someone who has gone on to greater glory since then was beguiled with the wonders of LH. Great systems, great support, great future. It actually cost bmi around £10 million just to join that club and they have probably got very little in return. It will all have to be spent again if they are taken over by someone else. I cannot recall that LH managers were ever beguiled with the wonders of bmi. It was not a deal that attracted popular support in that company.

In the meantime any buyer has to ponder the problem that bmi poses. That is that it is a high cost operation that can only survive if it is able to attract a premium because it operates from LHR. But it sells itself now as a low cost operation. It seems to fail even at that because at the fares it charges it ought to be full out of LHR. But it isn't. So it is failing.

Methinks the strategy of going to Star was a Star too far.

[I.C.Nosignal]

bus1 the "small handful" seems to be growing wouldn`t you say old chap??

[Anne.Nonymous]

Acbus1

Ask an intelligent question and you may get the response you are looking for.

As for why the other shareholders want to sell I think Max Nightstop is right. Both SAS and LH are in a corner if SMB enforces his 'put' option.

Anne :O

[Tags]

Meetings will be taking place with various CC reps over the weekend including VS

Not the case. The VACC don't have a meeting scheduled, at this point in time.

[scroggs]

Balpa have now been informed offically by bmi that Luffty and SAS are set to dispose of their bmi share holding.Meetings will be taking place with various CC reps over the weekend including VS

No such meeting has been sought with Virgin's Crew Committee over the weekend, and none has been scheduled for the future.

[averytdeaconharry]

Just suppose for one moment that the highest bidder for the LH and SAS stakes is Ryanair. LH as a publicly quoted company will have to accept that offer. Remember that Ryanair is cash rich at the moment and could easily afford the price quoted in today's Sunday Times.

Just imagine bmi and baby becoming part of Ryanair with 13% of the slots at LHR. It sure would change things.

MOL is probably having a very enjoyable weekend. It could be the best opportunity his airline has ever had.

[CarltonBrowne the FO]

And imagine the fun that SMB could have if MOL owned 49% of the stock in his company... like deciding it was in the company's interest to not give any dividend for a few years, or selling his 50%+1 to Stelios....

[lexxity]

Don't even joke about, please for all our sakes. :ugh:

[Young Paul]

It's worth noting that a lot of the "loss" that LH put down to bmi was actually a good-will writedown - in other words, it wasn't a reduction of cash in the bank (a real loss experienced), it was a reduction in the estimated value of an investment. Part of the rest of the "loss" may be something to do with the fact that bmi sacrificed its most profitable route (Frankfurt) when it became part of Star/Lufthansa became part of it - was there a quid pro quo?

[Copenhagen]

What about Wille Walsh and his EI friends taking over BD, thanks to venture capital from 3iii? Exact Same fleet to EI, and a similar business model (prior to recent EI changes) too.

[lexxity]

heard on the jungle drums that LH have sold their share, anyone in pprune land heard anything more?