The Lufthansa / BMI Thing (merged)

[Re-Heat]

Not seen another thread, but may be more appropriate here than in Airports/Airlines, considering the effect it may have on the UK market...


Lufthansa said to have briefed UBS on BMI takeover


Lufthansa is in talks to acquire a majority stake in UK airline British
Midland (BMI) and is said to have briefed UBS to advise on negotiations,
it is understood

A person following the matter suggested the German carrier, which has 30%
minus one share of BMI and is believed to have used UBS for several
projects over the last two years, had briefed the Swiss bank to work on
the complete acquisition of BMI.

Both UBS and Lufthansa, which this morning abandoned plans to bid for
Italian carrier Alitalia, declined to comment.

A Lufthansa's spokesperson added that it was already publicly known that
BMI owner Sir Michael Bishop had two put options to sell his 50% stake in
BMI to Lufthansa. The first of these must be exercised by next year, the
other by 2009.

Lufthansa chairman, Wolfgang Mayrhuber said in August that the airline
wanted to buy two more carriers and when asked by German press confirmed
BMI would be an option.

SAS, the Scandinavian airline, owns a 20% stake in BMI. SAS chief
executive Mats Jansson said at the end of October that SAS would sell its
BMI stake next year (2008).

What makes BMI particularly attractive is the advent of the US and Europe's
Open Skies agreement next year, which will allow more European airlines
(including BMI) to fly to and from a wider range of US and UK airports.
Prior to the agreement only British Airways, Virgin, American Airlines and
United Airlines have been allowed to fly between London's Heathrow airport
and the US

A deal would also forward Lufthansa's wider corporate strategy of
appealing to a wide range of customers through different brands. The
company is already in talks over a link-up between its budget airline
German Wings and TuiFly, the charter and budget carrier of tour operator
Tui Travel.

But Lufthansa is also likely to have competitors. As recently as October
it was reported that British Airways was also in talks with Sir Michael.

According to its website, BMI had a turnover of GBP 905m in 2006 and
carried 10.5m passengers at a profit of GBP 29.7m. Lufthansa had a
turnover of EUR 19.8bn (GBP 14.3bn) in 2006.

By Thomas Williams (mergermarket.com)

[roy2711]

roll on lufty
i think it would be better in the long run for lh to take us over than ba(london airways)
at least manchester would stand a chance;)

[AltFlaps]

What do we think would happen to bmiBaby and bmi Regional if Lufty were to takeover ?

[crackling jet]

was it the old bay city rollers song ?, as it comes to mind 'bye bye baby, baby goodbye'.

[bmia330]

why 'bye bye Baby'??

What do you know??

[crackling jet]

only past occourances, when someone jumps in takes over and ruins an up and coming entity,that seems to be the way of things, i hope its not the case though.

[brian_dromey]

I think WW would either remian as WW, and have a new fleet (319s shed from LHR as a start) or else be integrated into Germanwings.

I dont see why everyone says WW would be sold off, LH has spent a lot of effort getting into the LO-CO sector. I would not expect them to be rushing out of it any time soon. LH likes to have its finger in several pies.....WW fits the strategy...with a bit of work, granted, but it is profitable.

Regional has its niche as well, and might be used as a vehicle to connect the regional airports to the German and Swiss hub(s), as Im pretty sure most of the domestic LHR network will be dismantled, with the possible exception of Scotland.

Brian.

[dumdumbrain]

what will happen to bmibaby? EI-DLN :E

tiny's seriously going to be a little orphan child who nobody really wants.
Lee

[Centre cities]

One of 4 things.

Keep it as mentioned.

Sell it as a going concern.

It may not form part of the takeover.

Close it down.

My money would be on 2 or 4

Centre cities

[Ian Brooks]

Why close an airline down that makes money?

Ian

[globetrotter79]

Why close an airline down that makes money?


with respect, perhaps you are confusing generating cash with actually producing profit..

I stand to be corrected...but I'm not convinced that baby is profitable and the likely trading conditions over the winter and next year are not likely to help (not just WW but all competitors also).

Frankly, the sooner these guys, LS, GSM and probably XL cut to the chase and merge to form a decent sized airline with fair prospects for critical mass in the market and ability to drive down costs through efficiency of size the better!

[Whispering Giant]

Me think's that Baby may become the next aquisition of a certain west country airline that has allready stated that it would not rule out another "european airline aquistion within the near future"....

I mean look at it - similar route structure and based at BHX, need i say more....

Watch this space as they say - interesting times ahead....

[OltonPete]

LH takeover - the real reason why BMI are not flying LHR-USA in 2008?

Baby to Flybe.........I hope no ****** way :eek: We need more choice at
BHX not less and flybe are no LCC and as for low fares :cool: although they have got a bit more competitive recently.

As Brian has stated above LH appear to have no aversion to LCC's. Again transferring the 319's to baby a few years down the line sounds plausible.

JET2 would be a good match re aircraft and bases but if you believe some on the JET2 thread they won't be buying anyone.

For the Midlands - Easy would be sweet for the customer. Strong competition for FR at EMA, a walk-over at BHX, Cardiff if they want
and a walk-over at Manchester with JET2 appearing to going in a different direction. Okay it won't happen but they would get some great crews and
the aircraft could get replaced as leases run out.

As for summer 2008, Baby's EMA & CWL schedule is tight but more routes to come for BHX and MAN going by the gaps in the timetable at present.


Pete

[bmibaby.com]

The Lufthansa take-over of bmi is bound to happen, it's more a question of when rather than if. They have the right to take-over the company, it will bring them a wealth of LHR slots to play with and fits in line with LH's strategy of building up medium-sized European airlines.

Regarding baby, considering LH has successfully built up germanwings - they could theoretically do the same in the UK. The major difference is that germanwings dominate their markets, this isn't the case for baby anywhere other than BHX (and to a lesser extent CWL), and that baby's markets face much more direct LCC competition. I'm not convinced that regulators would even allow a BE/WW merger, let alone whether BE would want to inherit a fleet of geriatric 737s. LS don't have the financial clout for a take-over, even though strategically the two airlines would fit nicely. EZY would make a lot of sense to grow their base at EMA and expand into BHX & MAN - which is what they're rumoured to want to do, but think they have their hands full with the GB buyout.

[Ian Brooks]

Lufthansa already have a large MAN operation which links in very well with BMI
commuter and Atlantic flights and have only about 2 weeks ago announced that MAN will get a large expansion due to the way it has performed for them.
Based on that I think that they would try and push as much through MAN as
possible due to easier connections than London, even maybe offering passengers from Southampton area via MAN on the new BMI flight due to start in the spring

Ian

[ATNotts]

Lee,

I know you are besotted with Mr O'Leary's outfit (for good reasons), and I am no supporter of Baby myself...but, why should BMI Baby suffer as a result of LH buying a majority stake in BD - supposing there is actually any substance to the story in the first place.

Baby, unlike many LOCO operators flies routes from major UK cities (EMA excepted) on a mix of popular business and leisure destinations, not unlike Germanwings business model.

Of course, they might become integrated into Germanwings, or kept independent under the LH umbrella - as is Germanwings. If neither of these happened, then I fancy another European airline might be interested in expanding outside their own borders (a red and white liveried German once perhaps springs to mind - though they have been on a shopping spree themselves recently).

Orphaned - I doubt it!

[finding_nema]

Just with regards to some of the airlines touted at buying baby - why would any of them want to? FR and EZY could potentially price them out of markets, with a fare war being considerably cheaper and less time consuming than a purchase - both airlines preferring organic growth. BE may have suggested they want to buy another carrier, but would they really want to try to integrate a second seniority list at BHX and MAN, as well as taking on a fleet of old 737s, when they're trying to move quickly to a dual-fleet. Air Berlin makes no sense at all, the airline is not expanding in the UK market having just dropped some routes, and would they really want to arrive in a market where they're suddenly faced with strong LCC competition? More than likely, Lufthansa will keep baby as a marginally successful stand-alone entity and try to find ways of maximising profits. Or, leave the LCC markets alone, given that the cost base is never going to be like FR's, and go back to niche flying like regional.

[llanfairpg]

ACHTUNG

Dont worry next years recession will take care of at least one of the carriers mentioned above

[lederhosen]

In response to Bmibaby.com's comments about Germanwings dominating its markets, I have to say that is not the perception of the press here in Germany. In fact the recent speculation about a merger between Tuifly (Germany) and Germanwings was explicitly linked by the Handelsblatt newspaper to Lufthansa's disappointment with Germanwing's development.

However given Lufthansa's apparently positive experience with Swiss, one could understand the management board warming to further takeovers. There is of course the additional factor that taking over BMI would be sweet revenge for BA's temerity in setting up DBA. It brings to mind the old saying 'revenge is a dish best tasted cold.'

[JobsaGoodun]

I can't see Flybe wanting Baby or the ageing 737's that come with it, BMI Regional however is a different matter altogether and that route network could be very attractive for Flybe with very little overlap.

An undisclosed European airline ordered Q400's (10 firm + 10 options) on 23rd October with Bombardier stating that it was for a new customer who doesn't already operate the type. Could this be an order from BMI Regional????

It'll be an interesting year ahead in European aviation!

[Whispering Giant]

Another reason that Flybe may be interested in Baby is that all of Baby's leases on there 737's expire in the next 12-18 month's - so therefore it would be a good oportunity to change there fleet...

Some how dont think think Flybe would be interested in BMI regional's route's - this would actually fit in better with Lufthansa's route structure, and let them into the UK regional market.

[brian_dromey]

Im pretty sure all of the leases do not expire in 12-18 months, indeed I think some of the a/c are owned, the ones initially in operation with BD anyway. WW have recently taken delivery of more 737-300 (mainly to replace 735) and I doubt even BD were stupid enough to take aircraft on 12 month leases, unless there is going to be a major shake-up in the fleet.

LH have an option on SMB's share of bmi. SO the ball is in their court, not SMB's. What I am not too sure of is if that share includes WW and regional or not, depending on how the company is structured, and what exactly the LH option pertains to.

Brian.

[llanfairpg]

Do they? Really? :rolleyes: The word you wanted is "their" by the way.

But the words you need are, ' what a pathetic sad prat.'

Sorry to piss on your ego

[acbus1]

Lufthansa........is said to have briefed UBS
A person following the matter suggested.......
.........is believed to have used UBS for several projects over the last two years
Erm, sorry to spoil the flow (in more ways than one), but does anyone actually know of any slightly more reliable links / news reports / quotes / whatever?

I know that the 'R' in PPRuNe stands for "rumour", but there are limits.



PS - whatever you do, don't mention the prospect of job losses or reduced pay and conditions. :eek:

[ATNotts]

EI-RB

Still fighting last century's wars are you? I would have thought that a strong carrier such as LH might be very welcome as a way of shaking up BA at LHR!

[Whitehatter]

BD would fit beautifully into the mergers models that major carriers would need to follow. I could even see LH investing in the MAN base as a Munich type operation, where critical mass would possibly swing it into a going concern as a structured longhaul operation under the BMI branding.

BMI (powered by Lufthansa) has a certain ring to it...

[fly_emu]

Its not that surprising to here Lufthansa taking over BMI, they are cash rich having sold their stock in TCX for about 800 million last year and BMI's slots are worth their weight in gold when open skies kicks in!

As for baby... who knows

[CheekyVisual]

LH will control BMI group within the next 18 months. Whether that means the group as a whole or just mainline no one seems to know. However, what is for sure is, like BA, LH will only be interested in the mainline operation. Regional may have a future life as part of Team Lufthansa but Baby would be a real problem child.

Baby has to have a new fleet in the next two years. Bmi can't afford it. baby on their own can't afford it. The only future it has is as part of another merged Lo-Co. No likely purchaser of Bmi is going to fund it.

Anyone in the market for bmi must already have a plan for Baby and Regional. It may even pay LH to simply "give away" the baby business as BA did with Connect. If BA manage to win they will certainly offload both companies ASAP.

Even with the GB buy out I bet Easy are watching with interest if not already in talks with the potential bmi bidders. Even with it's problems getting Baby for next to nothing must be attractive.

[Ian Brooks]

BMI commuter is a very important operator to Lufthansa in that they connect
from many places in the UK that Lufthansa don`t and feed very large numbers into Manchester for onward flights worldwide via FRA and MUC
so I would very surprised if they just dumped them

Ian

[scorpio88]

http://www.ft.com/cms/s/2/cdda4156-a72b-11dc-a25a-0000779fd2ac,dwp_uuid=e8477cc4-c820-11db-b0dc-000b5df10621.html

"Lufthansa is in talks to acquire a majority stake in UK airline British Midland (BMI) and is said to have briefed UBS to advise on negotiations, mergermarket understands. A person following the matter suggested the German carrier, which has 30% minus one share of BMI and is believed to have used UBS for several projects over the last two years, had briefed the Swiss bank to work on the complete acquisition of BMI"...

If this really does happen, what would happen to BMI...would BMI become Lufthansa, or would they throw us away and use our slots or something completely different?

any thoughts?

[skiesfull]

And this is the same UBS that has just posted a massive loss due to poor investments???? Perhaps the question should be "where is the capital coming from?"!!

[desmotronic]

DJ News Highlights: Top Equities Stories Of The Day11/12/2007 07:00AM AEST

UBS WINS TWO NEW BIG INVESTORS, WRITES DOWN $10B

UBS is selling a 9% stake to a Singapore government fund as part of a move to strengthen capital after it announced a further $10 billion in write-downs on subprime holdings. The bank also says it now expects to post a net loss in 4Q, after having said earlier that it expects a profit overall. Chairman says the bank has sufficient capital even if the subprime market deteriorates further. Trades up 2.9%

[PAXboy]

UBS as an investor and as an advisor are two different things. As any airline employee will know, one company can do two different things, doing one very well and one rather badly!

My guess is that, if LH take over, it is too early to call. On the one hand, they are a cautious company that do not move quickly into new things. On the other hand, it is a time of rapidly changing times in the airline world. Further, the forthcoming recession will change the fortunes of all carriers. Doubtless there are those who know the route networks inside out and can advise on overlaps but, I think we may be sure that the EGLL slots are the jewel in the crown.

For Sir Michael it appears to be, "Any purchaser, as long as they are not British."

[Bishop of Baku]

With a potential property slump looming, I’m not sure it’s a good time to buy Donnington Hall for luxury apartments. Perhaps a health club darling?

[RevMan2]

Read on:

A Lufthansa’s spokesperson added that it was already publicly known that BMI owner Sir Michael Bishop had two put options to sell his 50% stake in BMI to Lufthansa. The first of these must be exercised by next year, the other by 2009.

bmi has already outsourced its MRO to LH Technik and a big chunk of IT services to LH Systems.

My guess is that LH will expand bmi's capacity dramatically and use the UK as an aircraft carrier. Which is what the strategic plan has been all along.

And its better to have sole influence over the direction of the company than to continue picking up 30% of the tab for some disastrous management practices.
You'll all have to learn German, of course....

[hetfield]

You'll all have to learn German, of course....

Don't think so, their English is quite acceptable.

[acbus1]

Assuming the report is correct and actually happens (big assumtion, at this time)-------

Expanded longhaul looks likely. Big investment, but big profits.

One thing is definite, provided LH recognise the problem and take action. Better management at all levels, from the top downwards. Less timidity and generation of public school "back stabbing" attitude at the top. Much greater efficiency throughout. More professional. Management ability driven promotion, as opposed to absolutely nothing but crawling ability.

From my own direct experience, as a first action, they should definitely ditch the current pilot "management" and insert their own. Sack everyone in Crewing (with one or two very notable exceptions). Get some real brains in Operations, instead of money-wasting amateur panic merchants. You listening, LH? Some useful inside info for you! Ignore at your peril!

[king surf]

13% of the slots going to LH at LHR would be a serious threat to BA and VS.

[RevMan2]

You listening, LH? Some useful inside info for you! Ignore at your peril!

LH knows.

They have senior representatives on the board and are embedded at all commercial and operational levels since 2000.

You don't know the half of it, mate...!

[Davidsoffice]

Does LHR mean Lufthansa Regional?

David

[acbus1]

13% of the slots going to LH at LHR would be a serious threat to BA and VS.
Which could also be expressed as "healthy competition". :)

(OK, "healthy" may be slightly optimistic! Lets say some way towards being as healthy as it gets in the favouritist, bizzare, wasteful, strangulated world of the Heathrow slot system)

[mutualswap]

i think if Lufty were reading this their 1st move would be to find
acbus1 and sack him,therefore removing the company of atleast 1 member of deadwood!:ugh::ouch::ugh::ooh::ouch::{:yuk::=

:bored::bored::bored:

[AirLCY]

Regardless of how much people like / dislike BA,BD,VS - surely it would be better if BA were to buy BD - Britain needs a national carrier with slots comparable to German and French flag carriers who have far greater slot majorities at their hub airports than BA. I think enough British Airlines have fallen into German hands already this year!

[king surf]

I Think Sir Michael might lose the Sir bit if he were to sell all to LH!!

[skiesfull]

LH would probably scrap the domestic and near-European destinations that can be served by train. I suspect they want the LHR slots to operate to the USA, similar to BA's intention to do so from Europe. As to the BMI workforce T's+C's, ask SWISS employees if Lufthansa ownership has meant an improvement or otherwise.

[BMEDFO]

Personally, I only see Lufty buying BD, they have first option- why wouldn't they? BA are putting 757s into Europe and treading on their turf, Lufty etc won't take this lying down.....

So my bets are on Lufty buying BMI, limited shorthaul (GLA/MAN/EDI) and The rest for Longhaul........

The big issue is who will fly the Jet's.....personally I can see another KLM UK style take over...a few bmi people will have jobs but In Lufthansa regional....the rest will told to :ugh:

A very uncertain time indeed for bmi staff :(

[SinBin]

The only person who knows what is going on is SMB, and he won't tell anyone what's going on (why should he it's his shares), I think it's not all doom and gloom for us yet! All this is pure speculation and rumour control. There seems to be little truth to any of this.

[king surf]

The FT surely would not just dream up a story like this to sell the Newspaper.Leave that up to the daily mail!! Let's not forget that if BMI were to sell to LH 1 in 6 aircraft would be LH at LHR.Combined with many slots alwready they would dominate LHR alongside BA.

[skyman771]

AirLCYsurely it would be better if BA were to buy BD - Britain needs a national carrier Can't have been too much thought gone into this comment.:confused: BA would simply be buying out the competition on its premium UK domestics such as GLA. For starters problems with monopolies commission, then again on other routes why on earth would BA want a stronger UK route network (other than to acquire more LHR slots) when it has been their policy over the years to transform their product from a national carrier into 'London Airlines' and sell off their regional op's !:ugh:

[AirLCY]

LH will surely use the majority of slots to expand long haul from LHR which will damage both BA and Virgin - the British Carriers. Surely it would be far better if BA or even VS get the slots and expand long haul, rather than a non UK airline. I'd be very surprised if LH kept anywhere near the current level of European and Domestic ops from LHR if they take the slots. BA would end up with the majority of domestic ops from LHR, but if you look at the whole London market including STN / LTN and LGW - Easy are a fairly large carrier, who BA would still need to compete effectively against.

[SinBin]

Don't write off bmi just yet!! As I said earlier, only SMB knows what will happen, and the sell off is only an option that LH has given him. He is incredibly passionate about his baby, so would he really want to see everything he's built up over the years just disappear into thin air without a trace regardles of the money. I doubt it. LH are most probably just flexing their muscles in case he sells, but will he? Only SMB truly knows.

Management are using the word predator to describe the business at the moment. Somehow I think something else will happen, of which no-one can predict.

[22/04]

I still think a VS aquisition is the best option. Merge the long haul ops, operate a separate Virgin Brand on the mainline short haul, both from T3 LHR.

Sadly this would probably spell the end fo Baby abd Regional as both would be sold ( to EZY FR etc and FlyBe respectively, although I'd like to see a Jet2/Globespan/Baby merger)

All in all though ( leaving FR who I don't think would buy anyway) this would lead to strong UK compettion at LHR

[Ian Brooks]

I`m not so sure that the regional arm would be sold as there are quite a lot of trans ats from Manchester by both BMI and Virgin with the promise of
China by Virgin and of course the Star Alliance hub which Manchester is which are all fed by regional
The main question would be would Virgin/BMI be a Star Alliance or go it`s own way

Ian

[TopBunk]

IF Lufthansa exercised it options to buy BMI, I don't think that they would want the whole business and slots.

Personally, I would see their best option as being to keep sufficient LHR slots to operate a domestic feeder service to a LH/BMI operated LH network of say a dozen destinations. Lets say that this would require 50% of the existing BMI slots. They would then fund this whole venture by selling off the rest of the slots acquired to airlines desperate under open skies to get a toe in the door of LHR (ie. US carriers).

For LH to buy BMI and to operate LHR-Europe would be self defeating.

In this way, if it worked, great, if not, then it is a standalone operation easily severed. I'm not convinced that integration (a la AF/KLM) is necessarily on their plan at present.

[Ian Brooks]

According to Lufthansa they carry more long haul transfer pax through MAN than London especially to India, China and Pakistan

Ian

[PAXboy]

From various comments by various folks, I'll use this one:
Surely it would be far better if BA or even VS get the slots and expand long haul, rather than a non UK airline.
Before we even consider BA and VS, remember that the slots can be acquired on the grey market by anyone with the route licences and cash. Whether it might be 'better' for the slots to go to one carrier or another (UK or not) is irrelevant as there is no longer a central control over them. Now, to the main point.

BA are not in buying mode.
BA are selling (have sold) their domestic network.
BA could not buy it if they wanted as the Monopolies folks would be crawling all over them. Which is why, in the past, they have just bought up small fry Like Brymon and Manx Air to get their LHR slots and then dumped the routes to LGW and then, eventually, the whole carrier.
VS have tried in the past to buy SMB's share of BMI - SMB rejected them each and every time.
A VS + BMI strategic partnership makes sense to everyone except SMB who rejects it every time.
VS have now done other things and concentrated on their long haul product from the UK. Realising that the UK market was now rapidly maturing and the window was closing, the Virgin Group started domestic carriers in Europe, Africa, OZ and USA. Had they started in the UK, they would have had to do so from scratch and that would have been a waste of money. SMB/BD could have linked to make a UK/Euro/Global carrier and he decided not to.Which is why I said - the only likely purchaser of SMB's shares are LH. I might be wrong as I have only been reading about BD/VS/BA for 20 years, during which time SMB has danced around the garden and ALWAYS rejected ANY British purchaser. He then failed to achieve his long haul objectives.

[6chimes]

Can BA afford to let bmi go to anyone else? Particularly if that other company were more efficient than bmi (not hard) and had the size to compete with BA financially. Bmi have never been able to really have an impact on BA other than on a few domestic and european routes. Another large company would be to much for BA to deal with.

BA has a huge cost base and as we all know and envy, their staff are much better looked after and paid than more for working less. Something that the top brass at BA know well and are keen to resolve.

Here is a scenario. Buy bmi rename it BA europe or something else it really doesn't matter what, transfer the Saudi routes into their L/H operation and slowly intergrate THEIR eurofleet into bmi thereby in one fell swoop reduce a massive cost base of crew and operations. Ending up with a LGW style operation for their european/middle east network on the cheap. It would create a lot of unrest and probably industrial action but the longterm outcome would be worth it for the boss. Or done over a few years with the odd route moving to the new LO CO operation, it will be to late by the time it gets noticed.

Farfetched? Maybe. Possible? ...............Thoughts anyone?

Oh and by the way Paxboy, there isn't much of a case to stop BA buying bmi as far as monopolies and mergers are concerned, just look at the rest of europe and see what percentage of slots are held by the dominant flag carriers at their main hubs. You will see BA is well down the list.

6

[MarkD]

6chimes

BA can't just "buy bmi" - there has to be a willing seller.

As for the cost base at LHR - a big competitor putting it up to BA would give Willie W much more leverage over the unions to implement his slash and burn obsessions.

[brian_dromey]

I think LH are the frontrunners here, mainly because they have an option on the shares owned by SMB. That could be a prime reason why he keeps rejecting VS. Now, with SQ selling 49% of VS, perhaps LH could perform a double whammy and merge VS and BD as one. SRB will sell if the price is right, and allow the Virgin brand to disappear.

"All" they would need to do is recover the Y seats, paint the aircraft, rename both FFPs as "Miles and Less" send the LHR A330 to MAN and work with the A340/A380 from LHR and the 744 from LGW.

Baby gets merged into GermanWings, operationally at least, regional stays the way it is (thy might get E-Jets though).

At lot of the European routes would be dropped, these are well served by FRA/MUC/ZRH but most of the domestics would be kept. LHR concentrates on B|MED, VS and Domestic territory. MAN has some room to grow a select number of US services, and perhaps India as well.

Brian.

[Re-Heat]

Regardless of how much people like / dislike BA,BD,VS - surely it would be better if BA were to buy BD - Britain needs a national carrier with slots comparable to German and French flag carriers who have far greater slot majorities at their hub airports than BA. I think enough British Airlines have fallen into German hands already this year!
Certainly not - healthy competiton breeds better conditions for passenger, more choice, lower prices and better service. The days of national champions are recognised in all economically-literate countries to be far in the past.

It benefits nobody other than vested interests and shareholders to hold as many slots as possible at one airport; while connections in some areas might be improved, competiton far more quickly identified new routes, aids passenger experience, and permits greater flexibilty in changing circumstances.

(So exclude from the above - Alitalia etc)

[Re-Heat]

To clarify some confusion that appears to exist in some posts above, the owners of bmi have an option to sell to Lufthansa at prices set in the past; Lufthansa do not have an option to purchase - they have an obligation to purchase / recompense the bmi owners.

Airlines are not as easy to merge as it may appear on the tin - aircraft types used are one of very many different concerns...

[Re-Heat]

Oh and by the way Paxboy, there isn't much of a case to stop BA buying bmi as far as monopolies and mergers are concerned, just look at the rest of europe and see what percentage of slots are held by the dominant flag carriers at their main hubs. You will see BA is well down the list.

It doesn't matter from a legal PoV what other hold, it matters how they build that position. By merger is an issue; by growth originally is permissible.

[lexxity]

Brian, that's a very interesting assesment, I reckon you'll be very near the mark. It wold give LH the longhaul at LHR and the growth they desire at MAN.

[PAXboy]

brian_dSRB will sell if the price is right, and allow the Virgin brand to disappear.Yeah right! In the same way that Sir Michael has put his life into BD, Sir Richard has put his life into VS. Two very powerful and determined men tend not to agree that one of them will give it all away. Do not forget that the 'Virgin' brand is now linkled (indirectly) with four other airliens around the world. The British Midland brand is not.

In this century, global awareness is vital and each use of the name builds brand awareness. A person who goes to Virgin Music or Brides, already 'knows' half the name. That does not happen with BD. OTOH the Lufthansa brand is a global name.

[teamax]

REHEAT - your understanding of the `put option` is correct, but you may want to check if Lufthansa has a `call option` starting at the end of 2008 running for 5 months.
If the article I read is accurate, a quick definition of the above may give you a different view on the situation.

[brian_dromey]

In the same way that Sir Michael has put his life into BD, Sir Richard has put his life into VS.
Well Virgin express became "Brussels Airlines" through a merger, Virgin music was flogged to EMI and Virgin Megastores have become Zavvi. SRB is a businessman above all else, and he will flog any part of the Virgin group if the price is right.

I LH do buy BD, I dont see why Regional and baby would be closed/flogged off, LH have a string recored in each sector.

Brian

[acbus1]

As I understand it, from news reports at the time, Lufthansa (and SAS) picked up a big chunk of the bill when bmi was (still is?) losing millions on an annual basis. When MB jumps ship, it'd be a funny old prior agreement that rewarded LH for their pain by forcing them to play second fiddle to Virgin, BA, or anyone else.
-
I don't have a copy of the prior agreement, though.
-
Anyone have any facts? (or reliable links) on this?

[SinBin]

I'm sorry, I've been reading all these posts on this thread, of which there is not a shred of evidence to say that any sell is going to happen. As a man from the inside I can tell you that there is speculation from within, but I think bmi will be staying put for the forseeable future. Transatlantic somebody mentioned, look at the facts, it's a crap time to go to America from LHR as there's about to be a massive recession there, I flew one of the ex BMed routes last week to the middle east and we were full!! That's where the money is at the moment, not the saturated US market. :ugh:

[bmibaby.com]

Merger or purchasing speculation has been going on about bmi for many years, the major difference with this current round of rumours is that Open Skies being signed makes bmi's position particularly valuable, and that over the next few years SMB will both be able to, and be forced to sell, bmi. LH has stated publicly that they're interested in purchasing other medium-sized airlines after the success of LX, with BD and JK two of the obvious candidates. What this will mean for baby and regional, whether Lufthansa will also try going for SQ's VS stake to further build up LHR as a hub, when LH might take control ... all of it is up in the air, but the common feeling is that with the terms laid down in LH owning part of bmi, they're coming in some time soon.

[PAXboy]

brian_dWell Virgin express became "Brussels Airlines" through a merger, Virgin music was flogged to EMI and Virgin Megastores have become Zavvi. SRB is a businessman above all else, and he will flog any part of the Virgin group if the price is right.
Interesting, I had not heard about the Express / Brussels Airlines but I certainly did read that SRB deeply regretted his decision to sell the Music division. He imemdiately started V2 to replace it and that has a strong online presence, as well as the annual V concerts. So, he may have found the point at which his passion really lay and reclaimed the music. What he will do about the airline brands - perhaps there is no guessing.

But there is a stronger indication of BD and Sir Michael. He has never relented and I hold to my suggestion that he would rather die still owning the shares, than see them sold to a UK carrier. After his time is another matter.

[JobsaGoodun]

Make no mistake, SRB sold Virgin Music to fight BA in the courts during the 'Dirty Tricks' saga. I think that clearly demonstrates where his passion lies. His airline is his greatest passion!

I would agree that first and foremost he is a businessman, but I think there was only one error of judgement and that was concerning VS Express.
Virgin Megastores are gone in the UK to Zavvi, no bad thing seeing as more and more of us use the internet to buy entertainment = a sensible move.

Like BMI, VS is still not on the stock market and this is where it becomes interesting. Bishop will sell to whomever he wishes (put option aside etc) and it would be no suprise if he joyously snubbed both VS and BA and put BD in the hands of LH. What LH then do with BD remains to be seen however!

[Count von Altibar]

From what I see reference the BMED routes some of the loads are diabolical. I believe some routes are good and some are pretty dire. If your still in denial as to where the future of bmi is going then cast your eye over the comments of various senior Lufthansa people who are quite clearly putting everything in place to exercise their 'call option' when it becomes available toward the end of 2008.

[bmibaby.com]

The future is definitely Lufthansa, the questions which need to be debated are when and to what effect will this have on the bmi group ie will it remain largely in-tact with it's 3 individual business units, or will their be major reshuffles? Also, what will become of the Hall?

[6chimes]

LH does not have the right to buy, SMB has the right to sell.

The moment SMB names a price and opens negotiations with LH then everyone in the industry knows that bmi is up for a bidding war. What we are seeing now is the chest beating of all the interested parties and chessmanship to either position themselves or fool the oposition.

6

[SinBin]

Couldn't have put it better 6chimes. There's only 1 person who knows what's happening. And he ain't gonna tell a soul.

[acbus1]

There's only 1 person who knows what's happening.

Are you referring to the person who spent years prattling on about open skies and healthy competition (conveniently forgetting to mention, by the way, the protected environment of Heathrow).
-
Is that the same person who then backpedalled when he had to put his money where his mouth had been?
-
Is that the same person who runs a shambles famed for it's constant changes of mind at "the top"?
-
Ah! Right! We really need to know what he thinks, do we?
-
But, here's the problem, is that what he thinks this week or next week or the week after or the week after that or...........

[SinBin]

Well you clearly know more than me. So how long have you worked for SMB?

[P Style]

I am wondering why many people categorically state that lufty have no call option, despite numerous business papers claiming they have a 5 month window from the beginning of 2009. Have those who say this is true seen the agreement signed all those years ago. It would be nice to have a definitive answer to this, which would determine the likelihood of an imminent sale.

[Nubboy]

The best link I have is here:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/05/03/cnbmi03.xml&DCMP=OTC-Autonolnk


enjoy and speculate to your heart's content;)

[6chimes]

Thanks Nubboy.

For all of you that think that SMB has to sell to LH if they want to buy us, here is one question for you to ponder. SMB had been lobbying for open skies long before the 1999 agreement with LH, so would he agree to being forced to sell his share at the 1999 price when Open skies would vastly improve the price? :confused:

6

[P Style]

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?queryText=bmi&aje=true&id=070427000404&ct=0&page=14

[SR71]

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!

[Re-Heat]

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.

[teamax]

SR71, exactly my understanding, (without seeing the contract).

[6chimes]

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

[Count von Altibar]

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...

[Nubboy]

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:ok: Roll on next Christmas

[SR71]

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?

[6chimes]

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? :suspect:

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 ...................:ugh::ugh::{

6

[North Stand Tier3]

With you on all of that buddy

Right,I'll get me coat.............................

[SR71]

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...

[Little Blue]

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 !

[OltonPete]

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

[miles offtarget]

FlyBe acquisition of bmibaby.

Very funny !

MoT

[SR71]

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...

[6chimes]

This is apparently the reason for the cancellation of the A330 orders and other such cost reducing moves?


Of course that could have been a factor but It was more down to the fact that once again the non aviation guys at the top didn't realise the cost implications of buying 330's that were not the same specs as our current ones.

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

[bmibaby.com]

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.

[Wiggly Bob]

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.

[Little Blue]

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.

[finding_nema]

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.

[acbus1]

All I do know is that SMB is nobodys fool and I bet, if he actually reads these boards, is quietly chuckling to himself.

Quite probably. After all, he's got all that lolly stashed in his bank account, a lot of it coming from years of bully boy imposed pay deals, the last one being a classic. Its only the plebian employees livelyhoods, futures and pensions at stake, so why should he not chuckle. No skin off his nose. He might well get a buzz from all the anxiety being expressed here.

[Wiggly Bob]

I was actually talking the other way round if BMI wanted rid of Baby. And as I said purely speculation... this is a rumour network too you know;)

[Little Blue]

I was purely being ironic !!
But it'd be nice to work with me old Jet2 mates again !
Although their 737's are older than ours !! Maybe not.

[Hudson Bay]

Both Easy Jet and Ryanair have announced that they will be opening a base in Manchester.

Ryanair was having a party at MAN this morning announcing new routes and Easy are planning 5 aircraft in MAN. (Announced yesterday). Where does this leave bmibaby.

My guess is a re-integration with mainline.

[bmibaby.com]

Even if Jet2 wanted to expand their business by purchasing another airline, their recent profit warning and current share price would presumably make buying another airline, even relatively small fry like baby, impossible. Shocking to think there are older 737s than ours though, and I'm quite happy not to be doing 757s to TFS thank you, we had enough of the charters when it was BM.

[SR71]

bmibaby isn't worth much IMHO.

Brand valuation in the LOCO industry is a bit of an oxymoron. People vote with their wallet don't they? Thats the whole point!

What assets has it got that are worth anything to an existing LOCO carrier?

None except, I venture to add, the pilots and the slots.

The infrastructure is duplicated, the aircraft are leased (and easy to move on if the difficulty finding 733's is anything to go by), most personnel are dispensable - even pilots if they're not appropriately type-rated, so I'd be surprised if it was worth more than, for example, EZY paid for GB.

Thats the price of a couple of new 738 airframes...which is peanuts to airlines which are expanding their fleets by ~100 aircraft in the next 2/3 years.

The future would be better orange than blue and yellow.

[bmibaby.com]

If an airline is desperate enough to need 737 type-rated crew then perhaps baby is an attractive company to consider buying, but otherwise I think we're most valuable within the bmi group, giving them a fairly successful toe-hold in the low-cost arena. Although WW aren't what we were at EMA, falling into the shadow of Ryanair, we're everywhere at BHX and CWL, and our presence in MAN and EMA isn't really too shabby. As much as there's talk that baby will be up for the chop if Lufthansa comes in, who can say that LH might not want to invest in the LCC market? Also, given comments made this summer, bmi is interested in buying other airlines not being bought. IF, the future were blue and yellow, besides it being the real final blow to everyone who moved to baby from BD, what would we necessarily bring that they can't get from organic growth? They may want to grow at MAN and EMA, but they've left CWL and BHX has always appeared too expensive. Plus they're saddled with flights to main airports with classic 737s, though this is similar to what happened with buzz a few years prior.

[twisted-diamonddolly]

Hey 6 chimes .!!!! merry christmas, glad to see nothing has changed at bmi and nothing ever will. listen get out and come over to BA. stop giving your soul to people who couldn't give a toss about you and come over to a proper airline.

hugs twisted.

[ETOPS]

Now that we are into 2008, and the deadline for SMB to exercise his put option is only 5 months away, how do we feel this is going to pan out? Obviously the BMI slot holding in LHR is very valuable but what about the likes of Baby and Regional? If LH were to buy BMI would the break it up and profit from selling the slots to their Star Alliance partners and might SMB retain the subsidiaries as a retirement hobby?

[K.Whyjelly]

Thought the option didn't kick in until december of this year?????????? A bit premature on your timing I think:}

[SR71]

Errrr.....

SMB's "Put" option expires in June 2009.

LH have a "Call" option on 10% of bmi's shares, which together with the purchase of SAS's 20% stake would give them overall control of the company, from Dec 2008.

FWIW, ABN AMRO have a paper out on the "Future of bmi" discussing various possibilities.

None of the them include bmi Regional and bmibaby, their opinion being that both these operations represent non-core business, and would probably be sold off.

[SR71]

Jet Airways consortium to Purchase bmi (http://www.telegraph.co.uk/money/main.jhtml;jsessionid=UXZEQIWIB41EZQFIQMGSFFOAVCBQWIV0?xml=/money/2008/01/20/cnjet120.xml)

[MaxRange120]

SR71 Thats old news.

B.T.W Have you seen the latest on Jet Airways from ATW Daily NewsTuesday January 29, 2008

See more http://www.atwonline.com/news/story.html?storyID=11548

for the full story


MR 120


Jet slides into red on high fuel prices, expansion costs

Jet Airways, India's sole profitable major carrier, yesterday reported a INR911 million ($23.1 million) loss for the fiscal third quarter ended Dec. 31, reversed from a profit of INR400 million in the year-ago period, ending a streak of four consecutive positive quarters.

Jet cited "historical high fuel prices and startup losses on international business" as factors in the result. Three-month revenue rose 27.8% year-over-year to INR25.17 billion on an 8.7% increase in passengers to 2.95 million. Fuel costs jumped INR609 million from the year-ago period. "The increases in all other costs were in line with the increase in level of operation and in most instances, even lower than that of the same period last year," the company said. Traffic climbed 43% to 4.55 billion RPKs against a 43.2% rise in ASKs to 6.59 billion, lowering load factor 0.2 point to 69.1%. It added 10 aircraft during the quarter.

Revenue from domestic operations (INR15.4 billion) accounted for 63% of the whole, down from 79% in the year-ago period, which Jet said reflects "the growing scale and contribution of the company's international operations." It suffered a pre-tax loss of INR144 million on domestic flights during the quarter compared to a INR733 million pre-tax profit in the year-ago period, when it posted a INR482 million gain from the sale of an aircraft.

[SR71]

SR71 Thats old news

About a week old, yes.

I imagine there is some mutual respect between Goyal and Bishop.

Both extremely successful mavericks who've taken on the establishment.

A $23.1 million loss is a drop in the pan to such high net worth individuals.

Bearing in mind Goyal is a naturalised German citizen, EU ownership regulations and Open Skies....

But I'm speculating.

[CLEE]

Frankfurt (Thomson Financia) - Deutsche Lufthansa AG is 'determined' to use its option to obtain a majority stake in carrier British Midland bmi, said its chief financial officer Stephan Gemkow.

'There is an option that enables us to acquire a majority stake in BMI,' Gemkow said to journalists during a conference call.

'We are determined to use that option. Beyond that there is no need to hold talks (with BMI)'

[Para on existing shareholding arrangements]

Bishop has a 'put' option to sell his stake in the company, and Lufthansa holds a 'call' option to buy out Bishop between Dec 08 and June 09.

[ETOPS]

This just in

Lufthansa to exercise option (http://afp.google.com/article/ALeqM5gP0E52pKerfwEwcaxQ8vj833NWLw)

[Ian Brooks]

That all depends on Sir Michael

[Facelookbovvered]

I suspect the Luffty CFO comments were taken out of context

[Facelookbovvered]

By Danny Fortson, Business Correspondent
Friday, 25 April 2008

Several airlines struggling to cope with the record oil price have approached BMI to sound out whether the carrier would be interested in buying them.

"They have already started coming to us," said the chairman Sir Michael Bishop after a speech in which he predicted the slowing economy and the record price of fuel was leading to a clear division of airlines into the "haves and have-nots." Those able to withstand the difficult conditions – five airlines have folded in recent weeks – would be determined largely by their fuel hedging positions. BMI, he said, has hedged 75 per cent of its fuel for this year.
Start-up carriers and those with insufficient scale to withstand the hike in operating costs are likely to be the most vulnerable. The approaches BMI has received have thus far been informal, Sir Michael said, but he added he is keen to expand BMI through "bolt-on acquisitions".

[fmgc]

I understand that the Woolly Pully has been in Dubai trying to raise money to buy that share in BMI as long as Lufty don't exercise their option.

[Walnut]

If the finance director of Lufthansa has gone on record saying he is buying an option that must be a fact, particularly as he said it to the Geman Stock exchange. Lufthansa unlike most European airlines is doing very well and the ability to control about 20% of LHR slots must be a great worry to their biggest rival BA.

[BAladdy]

Yes very true but remember all the old BMED slots go back to BA wef Winter08/09. So BD have a interesting summer ahead trying to rearrange the ex BMED routes into new slots. So maybe LH are giving up some of there slots to give to BD in exchange for a higher % share

[wingattack]

Off the top of my head the ex BMed routes only require 8-10 slots per day which is approx 10 % of their total portfolio. Easy to find by rearranging their current shorthaul slots which include a lot of 'slot-keepers'.

[Count von Altibar]

So whom do we believe then? The Germans or bmi management? It seems that Lufthansa have a call option and there's little SMB can do about it. All this we are aquirers bollox was a load of tosh. A nervous few months ahead for the staff in the bmi group, especially the management!

[INKJET]

Nah me thinks Bish as a cunning plan, nothing with bmi is as it seems????

[answer=42]

Count von Altibar wrote:
So whom do we believe then?

Your Countness,

Prithee may I try and have a stab at the right answer.

For Lufty to take over bmi, the board has to agree to do so, on the proposal of the Chairman, President or whatever. The shareholders might also have to vote. The Chief Financial Officer (CFO) is not in charge of the process. But you can be pretty sure that in a large company like Lufty, what the CFO says is happening is probably happening.

So, in a way, they are both right.

bmi is, in effect, suggesting that there is a split between the CFO and the Chairman, President or whatever. This is unlikely to be the case. So, it is a signal of non-cooperation in a situation where there is no scope for negotiation. i.e. bmi are angling for a better price.

[SR71]

The woolly pully better get his pully off and his skates on.

:E

[answer=42]

SR71

If what I said above is correct, then whatever strings the pulley pulls, he will have no effect. His woolyness has missed the boat, skates or no skates.

[Hudson Bay]

So that's it then, all Regional and bmibaby staff have been stuffed. Led up the garden path by management yet again. The day we realise we are Pawns in a much bigger game will be the day announcements such as this won't hurt as much. Why we bother to put our all into the Line flying, LPC checks even shaving our faces to look presentable on duty is mind boggling. Take, take, take guys cuz those bosses don't give a s--t.

[scorpio88]

"Lufthansa will take majority ownership of its British affiliate BMI, according to a statement made by CFO Stephan Gemkow."

“We are committed to exercising this option,” Gemkow said on Friday during a conference call with reporters. There are no ongoing discussions with BMI’s current majority owner, Michael Bishop, but Gemkow does not consider them to be necessary.
http://www.aviationweek.com/aw/generic/story_generic.jsp?channel=aviationdaily&id=news/LUFT04288.xml&headline=Lufthansa%20To%20Take%20Over%20BMI

"One transport banker said: "Lufthansa is going to get Bmi's slots, throw everything else away and bring in the A380s" -http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/26/cnbmi126.xml
What does he mean by "throw everything else away"?

http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article3819873.ece

INTERESTING TIMES FOR BMI!!!

[hetfield]

Lovely.

plus 10 characters:ugh:

[tunalic2]

In the Financial Times an article said


"Lufthansa already holds a stake of 30 per cent minus one share in BMI alongside SAS Scandinavian Airlines which holds 20 per cent. Majority control is held by Sir Michael, the 66-year-old BMI chairman, with a stake of 50 per cent plus one share.

A structure of put and call options between Sir Michael and Lufthansa has existed since the German airline took its initial stake eight years ago. Sir Michael holds a put option running from December 2005 to June 2009 to force Lufthansa to take majority ownership, while Lufthansa holds a call option running from December 20 2008 to June 19 2009 to take over Sir Michael’s stake."

So surely there is no surprise for the parties involved, just for people like me who didn't know that had already happened.

[Facelookbovvered]

The put & call options have been mulled over many times in the past, things are a foot and i think recent moves such as delaying further A330 and short term leases on the 757 are all part and parcel of what ever is going to happen? i would think that it wil be 6-12 month before its in the open, with the most likely out come that SMB will still have an airline to play with (baby) which doesn't fit in with Luffty and a chunk of cash to invest.

[Yarpy]

I used to work for SMB and, whilst I didn't approve of (or enjoy) his airlines working practices, I always had huge respect for him.

He is now the Grandad of British airlines. Watching all the suitors dance to his tune is hilarious. I am sure he enjoys running bmi far too much to relinquish control.

[Charlie Roy]

Sorry if this is off-topicish, but Belgian media are reporting today that Lufthansa are interested in taking over Brussels Airlines too :cool:

[Easy Ryder]

http://news.airwise.com/story/view/1209506525.html

Quote:
Mayrhuber also confirmed that the airline had resolved to exercise its option to buy the majority of UK airline bmi in two stages in the next two years. The timing and price had already been agreed with bmi majority owner Michael Bishop and the money had been set aside for the transaction.

[SR71]

Maybe, but the point of the call option is that if LH want to buy, SMB is obligated to sell.

That is what the call option is! (http://en.wikipedia.org/wiki/Call_option)

However, I find it strange that SMB would have ever put himself in this position.

There must be more to the contract than meets the eye....

[Mr Flaps]

If people go and read what SMB said the aviation council last week he is being very clever about what the feature plan for the bmi group is. He said and I quote. 'However, at the same time we are actively seeking new opportunities through bolt-on acquisitions for strategic expansion.' SMB, (2008) So is bmi looking for something new to take on or are they looking looking at jumping into bed with LH full time.
I quote SMB again.
'However, I can confidently say that shareholders will not permit an event to arise through which bmi would become the subject of any opportunistic or under-valued approach. Whether bmi remains independent and grows through acquisition or whether the shareholders decide another course, we will not be bounced into any particular direction by comments from other carriers or the media.' SMB, (2008).

He is not saying in public what he wants to do with his share as some have said bmi is his train set will he want to sell he train set to someone else. LH my have called it but is that headline grabbing on the part of LH. No one will know unless you are either SMB, LH or SAS.

I think lets sit back and wait. See what comes out of the Hall and LH. Jo public will not know until the press statement is read out.

[answer=42]

I'm sorry, but this is silly. Lufthansa have said that that they will exercise their call option. That means they will buy bmi at the pre-agreed price. Nothing the Bish can do to get out of that one. Putting out inaccurate press statements (and perhaps posting on pprune) is just bmi's way of saying that they won't go quietly into Lufty's arms, so can they have a little bit more money please.

Lufty's Chief Executive Officer was quoted in the Financial Times today as explaining exactly how the call option will be exercised (in 2 lots). That's the press statement: he read it out.

SR 71 asks a reasonable question:
However, I find it strange that SMB would have ever put himself in this position.

I would guess that the Bish wanted an exit strategy for his stake in bmi. That's the 'put' option: he can force Lufty to buy. And the price of the 'put' option was - yes, you've guessed it - the 'call option: Lufty can (and will) force him to sell.

Where the Bish's crystal ball went U/S was that he did not forsee that the Open Skies agreement with the USA would come into force before the expiry of the call option. This means he's forced to sell to Lufty for less than bmi is currently worth. ho hum.

[teamax]

So back in 1999, SMB thought Open Skies would not happen for at least 10 years! All this after getting within a day of breaking the Bemuda 2 in 2000, hence the A330 purchase.
Good try, but you will have to come up with a better explanation for me.

[SR71]

answer=42,

The traditional explanation of the put/call options as most people understand, means that SMB was betting his company was going to lose value over the term of the agreement...

The idea that he didn't anticipate deregulation to finally reach fruition prior to the deal expiring is crazy, whereupon, the only conclusion I am left with is, that the deal as traditionally understood is incorrect.

Notwithstanding that, it doesn't mean that the CEO of LH is not stating the truth of the matter in his recent statement.

Nor do I understand anything that SMB is said to have said recently to exclude the possibility of LH acquiring the majority stake in the business...

:confused:

[AbeamPoints]

I think its fairly clear that Lufty will buy BMI to get ~10% of the LHR slots. They will then put 9 of their A380's on LHR to New York and they will make a fortune as their product and service is wonderful compared to the tired offerings they would compete against.

On the outside there is a chance that they will merely sell on their purchase of BMI to Branson with a small premium for their trouble. Though I doubt he can raise the finance in the current climate. He may be a very rich tax exile but he runs his companies on a lean diet.

Whichever story comes to pass the future of BMI Baby is bleak. They won't be here by Christmas 2009. Their brand makes no sense, they own no slots, they have the wrong fleet and they will be losing money.

[EastMids]

However, I can confidently say that shareholders will not permit an event to arise through which bmi would become the subject of any opportunistic or under-valued approach. Whether bmi remains independent and grows through acquisition or whether the shareholders decide another course, we will not be bounced into any particular direction by comments from other carriers or the media. The future of the business will be determined with the best interests of bmi, its shareholders and staff being paramount.

If this is the key paragraph, it could be argued that:

a) If there is a call option, an approach from Lufthansa could not be regarded as "opportunistic" - it has been cast in stone for some time

b) The share holders are SMDB, Lufthansa and SAS. Therefore, in respect of the shareholders "decide another course" or "bounced" firstly Lufthansa have a role in that process even if not a overriding one, and secondly with SAS being known to want to bail it only leaves Sir Bish to make a decision to jump (or have his hand forced)

c) As previous, the "best interests of... its shareholders" involves Lufthansa too



As far as SMDB's "train set" is concerned, Regional could still remain as SMDB's trainset for his retirement. Sell bmi to Lufty, dispose of baby somehow, and keep bmir as the toy... Sounds eminently logical to me

A

[Richard Taylor]

As long as the "toy" gets sufficient aircraft to develop....:)

[answer=42]

SR71 / teamax (who basically have the same view)

The put/call structure is compatible with an expectation that bmi was going to lose money. But without knowing the prices, it's impossible to verify.

SR71's view that:
The idea that he didn't anticipate deregulation to finally reach fruition prior to the deal expiring is crazy
certainly made me think:

It's not deregulation itself that has changed the value of bmi but its EU-wide scope.

The current position has been brought about because four events have taken place:
1. The EU denounced previous air traffic agreements such as Bermuda II as discriminatory
2. The European Commission obtained negotiating rights from EU Member States for a transatlantic open skies agreement
3 The USA conceded European 'nationality' for EU airlines during air traffic negotiations - this is the key element
4 The open skies agreement has come into force

Without point 3, any UK-USA open skies agreement would have required partipicating airlines to be 'British' or 'USA'. And to be 'British', they would have had to have been at least 50% + 1 share UK owned. Which is precisely the structure of bmi.

It is therefore point 3 that makes the remaining 50%-1 shares so valuable to Lufty.

In 1999, if I remeber correctly, points 1 and 2 were under discussion but points 3 and 4 were still a million miles away.

Of course, I am open to alternative arguments

[brian_dromey]

I really dont see why LH would NOT want baby and Regional.

While not all of them feed into the BD hub at LHR they serve their own purpose. The fact of the matter is that it is impossible for us to know what parts of the group swallow the cash other parts generate.

LH have clearly set out a model where they are represented across the world in most of the major market niches.

Full service - LH, LX, OS, Air One, etc
LCC - B6, 4U, Hapagfly.
Regional - All the regional partners in the "Lufthansa Regional" banner.

I think baby and regional will be taken as well, and Bish could well be made chairman or something like that. What is far more interesting to me is wither WW stays as a relatively small player or gets merged into different parts of the LH group, perhaps with bits going to 4U, BDRegional (with possible E190) and mainline.

[SR71]

flapsfullretard

only had hand full of people know what is on the contract....no point speculating about who will force whom to sell to who!

waste of finger typing

Why not? Its fun...a bit like having a SIPP and seeing if you can beat the experts at their own game....

Topslide6

Yes but.....If SMB doesn't wish to sell, he doesn't have to.


Merely re-stating your argument doesn't make it any more valid....unless you do have inside information?

Not that you might not be right....

If what you suggest is the case, what exactly did LH pay for in 1999? How does such a "call" option derive any value?

[INKJET]

Luffty (along with SAS) paid to stop BD operating in their respective home markets, i understand that put/call options often have a buy out clause whereby you can buy the call options. I think that SMB will sell, but it will be interesting to see the detail of what is left, it wont be "i'm gone" Bye

[The Real Slim Shady]

bmiBaby will not cease to exist: it will simply morph in to the UK end of LH's loco Germanwings.

[moosesoup]

Further to the thread which has been closed on bmi ownership, see this article http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSL2927354020080429

Straight from the horses mouth - I dont think there can be any doubt about future ownsership

[fendant]

My bet is that they will try the fledgling AUA first, another fine airline run down by the lethal combination of stubborn socialist unions and incompetent management dominated by politicians.

AUA has lost about .7 Mio € per day in Q1 08, a little less worse than superfluous bankrupt Alitalia, curently loosing 1.5 - 2.0 Mio € per day. Debt pay back period out of free cash flow for AUA is now 42 years (!), which is 6 times longer than crappy United. AUA is flying 15 different aircraft types, a legacy of the past where they bought from the manufacturer who "alimented" the prevailing ruling party.

Frank

[On the Straight and Level]

Moose

The articles dated 29th April. Thats about a fortnight old.:ugh:

Think this thread should be attached to the one that has now closed, as there's nothing new here:zzz:

[ETOPS]

More from LH in this Reuters article

LH to buy BMI in 2 stages (http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSL2927354020080429?pageNumber=1&virtualBrandChannel=0)

This quote is interesting

Mayrhuber also confirmed that the airline had resolved to exercise its option to buy the majority in UK airline bmi in two stages in the next two years. [b]The timing and price had already been agreed with bmi majority owner Michael Bishop and the money had been set aside for the transaction.

My bold

[keepitlit]

Could someone expand/explain why Lufty management are at LHR talking to BA today.
Is this to do with the deals revolving around bmi and Iberia trading!!!!;)


regards

Keepitlit;)

[fendant]

Offering advice how to fix the ongoing mess in Terrible 5 ???:rolleyes:

[hardhatter]

...payback for WW2...?....:oh:

I am outta here!

*sprints for the door with tinfoil hat on

[Andy_S]

For you, Tommy, the price war is over :E:E

[CRayner]

or possibly, "Gerry at 5 angels. Tally Ho!":)

[HZ123]

Lufty are meeting with senior BA execs and maybe WW to smooth out any objections that there maybe to their take over of BMI. If there can be an agreement in principle of a small number (7) of route transfers then BA will not oppose the Lufty take over. I believe a similar exercise will take place with Virgin.

[hunterboy]

I had my hopes up then.....I wonder what BA would have been like if run by half decent Lufthansa management that concentrated on growing the business rather than attacking its staff. What a shame.

[Taildragger67]

Wonder if BA will press LH to not oppose BA/AA closer relations due this and the 'Open Skies' malarky (and I don't mean the bastard-son-of-BA)

[Tandemrotor]

Makes me wonder how BA crews would respond to WW deciding to outsource the LCY-New York or Orly-Newark routes to PrivatAir.


Of course all 'informed' individuals realise that 'Scope' prevents the former, and BA are not proposing the latter. I wonder why??? :rolleyes:

[tb10er]

"Zeee Germansss are going to takeover your flagcarrier!"

I wouldn't trust BA to be a bag carrier never mind a flag carrier:\

[jiffajaffa]

correct me if im wrong but isn't Virgin the flag carrier??? :hmm:

[CHIVILCOY]

BA are discussing how much LH wants for it's stake in BMI.:ok:

[Lurking123]

Dear Willy, you don't know us all by name but we are extremely interested in why you are chatting with Fritz today. We take a great interest in your company and thrive at any opportunity to throw some mud in your direction. Indeed, may we congratulate you for giving us hours of fun with the T5 debacle.

So, if you would be so kind, how about registering with Danny's mates, getting a user name and spilling the beans on our forum.

Yours

The Prooners.

[hetfield]

@Lurking123

Who is "Fritz" ?

[dontdoit]

And of course the difference between our bmi friends getting on board with BA -v- getting on board with Lufty would be that under UK law, seniority lists would have to be integrated (in the BA case), whereas under German employment law, (and an arguably stronger Union) it will most definitely be "welcome to zee bottom of zee list".

[Taildragger67]

Hetfield,

'Fritz' is a generic name for people of Teutonic extraction (ie. the Germans).

Like Poms being referred to as 'Tommy' by the Frtizes during WW2.

[hetfield]

@taildragger

Thx.

regards hetfield



May 16th 2008
(63 years after WW2)

[Angel`s Playmate]

Guys, it`s pretty simple.

BA and LH are the 2 most profitable airlines in Europe.

Topic of the day was how to split up the remaining European airlines :{

Face it,besides AF/KLM most of them are in serious trouble. SAS, Alitalia, Austrian, Olympic, Iberia and so on......:hmm:

Happy ldgs

[Throat]

63 years after WW2 .....


.....They started it

[fendant]

Angels Playmate:

You mean BA will pick up AZ, IB and evtl. Olympic. WW fixing AZ, can't be worse than Terrible 5.
Or will Olympic finally go to Ukrainian or PIA?

This means that Lufty will pick up BMI, Brussels, AUA and SAS ?

As a result I can see a significant improvement in coffee quality on BA flights.

[Professor Fog]

Have heard from some inside chaps that Lufthansa is definitely taking it's option on BMI towards the end of the year.

They are taking some of BMI's LHR slots and they are currently in talks with BA as to a sale price for the rest of the operation (excluding Baby and Regional). Does anybody have details on this ?

[ETOPS]

All covered here (http://www.pprune.org/forums/showthread.php?t=326936) Prof.

PS Definitely is definitely spelt definitely not definately :ok:

[Flagon]

Hands up all those who think the spelling police are as big a pain-in-the-a.r.s .e as the guard police :ugh:

[Deep and fast]

Any idea why zee Germans do not want regional? Perhaps they would be retained for train set purposes LOL.

D and F :8

[TESTED.NFF]

It was reported a while ago that Laufthansa were going to exercise their options with bmi. I understand when the comment was made it was regretted due to the reaction caused.
My thoughts are; Yes, Laufthansa have options and yes I,m sure they will excersise them at some point in the future. When? Only a few key players know the answer to that question and they are certainly not going to talk about it outside of their group. So all talk about bmi and Laufthansa is just speculation. Therefore it is not worth losing sweat over rumours.

Ref bmi baby and Regional - What value do they hold for Laufthansa? I would have thought the LHR slots are the driver for any future decision.

My thoughts only! ;)

[HZ123]

By this do you mean that BA would be offered some slots not to oppose this merger. Would not Virgin also want a sweeterner and I fear BA may have more slots than what they know what to do with this winter and will have a jobsworth using there own. There are always slots for sale at LHR and this winetr will be a good time to buy as for once they may not be so expensive.

[hunterboy]

The problem is buying prime time LHR slots...almost impossible to get hold of.

[HZ123]

There are always slots for sale but not the desired morning ones. If there is going to be a noticeable reduction in airline services from LHR this winter then expect to see some new services on the block maybe. For once the slots value may well fall as some airlines struggle to utilise theirs fully and more importantly profitably.

[Professor Fog]

BA has actually ear marked the money for the purchase and will not let it slide........:ok:

[Midland Alpha9]

Nice one Flaps that would explain why Nigel (cabin girls best friend) hasn't bothered to look for anymore 330's. Duck here comes another flying pig.
Best we brush up on the German

[Dan D'air]

63 years after WW2 .....


.....They started it


They certainly did. They invaded Poland.

[BIGBAD]

heard a rumour that the bishop of frog hall has sold out to the german's ?? can this be true ??

[ETOPS]

Err............. Where have you been :confused:

Check any of the multiple threads here about this or do a Google News search................

[wobble2plank]

An interesting 'rumour' article run in the Observer business section over the weekend.

How much is journalistic speculation will always be up for question, never the less it makes for an interesting proposition if only for the Monopolies and Mergers people!

Rumours abound that when, and if, BA and Iberia agree a merger, Lufthansa is ready to make it a three-way alliance - but only if the Germans are in charge. For his part, BA boss Willie Walsh, pictured, has made it clear that the quid pro quo of any such tie-up would be for the Germans to sell him their stake in BMI, to enable the British company to cement its position at Heathrow. Oh, and - no surprise here - the British say they want to be in charge; so whether a deal can be done is very much up in the air.

Discuss! :eek:

[Kerosene Kraut]

Would BA ever get the antitrust permit to buy BMI's slots at Heathrow? Never ever.
BA and IB? Maybe
IB and LH? Maybe
BA and LH? Maybe

[AngryBaby]

Lets hope not eh. God knows what will be in store for regional and baby if that happens.

[wobble2plank]

Don't forget though that Lufty have in excess of 80% of the slots at Frankfurt and AirFrance/KLM enjoy a similar position at both CDG and AMS.

I would be fairly certain that the BA lawyers would be quick to quote those statistics whilst adding that a percentage of slots would be sold to appease the Monopolies commission. Obviously those slots to be sold would be duplicate timings with the newly formed BA/Iberia/LH alliance and hence would not be needed.

Gives a few things to think about!

[cheesycol]

If BA could get the approval for holding that number of slots a LHR, it could be the catalyst for a large and BA led change in the UK. I'd imagine it would give BA the excuse to all but relieve itself of LGW ops, retaining maybe some key European business routes and the 777 Caribbean services. I'd imagine that Baby would be wound up along the way. BA may also want to capitalise on it's Flybe stake and offer them Regional and their current LGW shuttle operation.

If that were to be the case, then I'd suggest UK aviation will be dominated by BA & easyJet, is that a good thing?

[Cyclone733]

If that were to be the case, then I'd suggest UK aviation will be dominated by BA & easyJet, is that a good thing?

Well if as you suggest, BA were to throw LGW to flybe. Then it would be BA and a company part owned by BA (flybe) dominating UK aviation. I seem to remember reading somewhere that flybe are now the largest regional carrier in Europe. I'd imagine that'd appeal to Mr Walsh

[Torquelink]

. . . . or, Virgin buy SAS's stake in bmi, funded by Lufty investment in Virgin: partly from Sir RB's holding and partly from SIA's holding (who want out anyway). Virgin and bmi then merge with the whole joining Star - pooling Virgin's, bmi's and some Luftly slots at LHR gving major presence for Star effectively controlled by Lufty and SIA with no competition issues?

[The SSK]

I think you are being somewhat parochial here, seeing it just from the view of the LHR slot pool and the UK regulator. The European market is polarising at an amazing pace, with Air France + KLM + Alitalia in one corner, Lufthansa + Swiss + Austrian + Brussels Airlines + BMI ( +SAS, LOT, Virgin…) in another.

If BA is going to be a counterweight to these two it needs mass from somewhere – and who knows, ‘if you can’t beat them, join them’ might just be an option.

[globetrotter79]

Presumably if BA were to take BMI, with BMI regional perhaps merged into flyBe together with the LGW-UK domestic shuttles, I would guess that MMC would want to see BA divest itself of its shareholding in flyBe.

Bearing in mind what size and shape flyBe would then have in the London market...
...if you consider the London market as a whole, surely a position of a strengthened BA built around a consolidated LHR hub, plus a strengthened regional flyBe operation (also with a London hub at LGW) in addition to the strength of easyJet in the London market must be sufficient to pacify the competition authorities.
Forgive me if wrong, but I can't think of any other EU state where three similar such significantly strong and independent competing airlines arranged around the key city exist.

Granted, it would be necessary to ensure that new entrants (once economy recovers) are not blocked from entering markets as a result of the size of the incumbents, in addition to which I am fully and painfully aware of the likely impact upon jobs of such consolidation; nevertheless from an overall strength and security point of view (and bearing in mind the significant airline consolidation elsewhere in Europe) might this perhaps not be the worst thing for the aviation industry in the UK?

[Little Blue]

What a complete non-story.
Somebody, somewhere, was paid good money to write this up !
I'm surely in the wrong job!!:\

[Flightrider]

BA and Lufthansa could just agree a deal for BA and bmi to swap slots. BA would get all of the Heathrow slots, bmi would simply move to Gatwick with a load of cash presumably equivalent to the price which Lufthansa is paying for bmi to start with. There would be no competition issues as bmi would still be flying the same routes from London - they look at the market, not the airport. Much more likely than an outright sale, which would be mired in Takeover Panel issues from here to kingdom come.

[speedtouch]

I'd like to see how BALPA would work that one out!

Although I like the idea.....:ok:

ST

[MUFC_fan]

For the 3 to merge would be impossible! The people with the power would certainly not allow a tie up between the 3! I think even BA-LH is pushing it! Add to that AA it would make a stupidly large carrier and cover over 1/2 the world. It really would be ridiculous.

Anyway, LH would have to leave Star Alliance or BA and IB Oneworld which is like asking Jeremy Clarkson to join forces with Cherie Blair.

Not a cat in hells chance

[bmibaby.com]

If anything, and this is purely speculation, I could see Lufthansa cherry picking a few slots for themselves, their subsidiaries or to trade with Star Alliance partners, plus some to sell, and then use the carcass of bmi to sell to another company as a ploy to help get their buyouts of OS/SN through with the EU mergers commission. British Airways stated in, I think it was The Times, in 2007 when SMB was first mulling calling his options, that if bmi were up for sale they would consider the airline at the right price as a strategic move. Obviously all speculation, and for those of us who've been with bmi long enough, stranger things have happened.

[Count von Altibar]

Purely an attempt to reduce the price LH are paying for Bishop's stake in bmi. The price was agreed in 1999 and with the current economic outlook it's way over the odds. Can't blame Lufthansa really!

[Count von Altibar]

News hot off the wires, the EU has just approved the takeover of bmi by Lufthansa (taken from Reuters news agency)

Regards,

The Count

[Basil]

Genadige Count,
Have you a URL for that report?

[Faulty]

EC approves Lufthansa's takeover of British Midland | IOL (http://snipurl.com/i0vk6)

Rapid - Press Releases - EUROPA (http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/789)

[stormin norman]

I suppose we can now add BMI to the list of defunct British airlines.

[Excelsbest]

when did bmi do Direct Manchester - Moscow??

[woofly31]

So now the deal has been approved. When will they anounce the plans for the future of the comany. :confused:

[757_Driver]

I suppose we can now add BMI to the list of defunct British airlines.
Why?

I think BMI will remain a strong british brand - just because it is owned by 'ze germans' doens't make a lot of odds. Who the hell knows who owns what these days?. Hell most of BA probably belongs to some chinese hedge fund or something.

[Yankee]

Leading German carrier Lufthansa is no longer interested in acquiring full control of British airline bmi because the price is too high, Saturday's edition of Suddeutsche Zeitung reports.

Lufthansa management felt that bmi's financial position was worse than first thought, says the report.

The British airline lost 112 million euros (151 million dollars) in 2008.

The report, which did not cite any sources, follows Thursday's decision by EU antitrust regulators to approve the deal whereby Lufthansa would increase its 30 percent stake in bmi to 80 percent.

[StoneyBridge Radar]

Links, confirming the above.....

Air&Cosmos (http://www.air-cosmos.com/site/afp.php?Id=090515185238.ssciuzni.xml)

Luftfahrt - Raus aus dem Vertrag - Wirtschaft - sueddeutsche.de (http://www.sueddeutsche.de/wirtschaft/217/468780/text/)

[flying macaco]

The report, which did not cite any sources

Is this just a bit of speculation then or anything concrete??

[11K-AVML]

Is this just a bit of speculation then or anything concrete??They probably got their story from PPRuNe :}:rolleyes:, hence weren't feeling so sure about referencing.

[Count von Altibar]

It seems that Sir Michael Bishop has had enough of Lufthansa not playing ball with their agreement to buy bmi (formerly British Midland) and has instigated legal action in the High Court in London.

Lufthansa faces court action over BMI stake

By Kevin Done in London

Published: May 20 2009 19:40 | Last updated: May 20 2009 19:40

Sir Michael Bishop, chairman and controlling shareholder of BMI British Midland, resorted to legal action on Wednesday in an effort to force Lufthansa to take over his majority stake in the struggling UK airline.

He is seeking to enforce a long-standing contract under which he had an option to require the German aviation group to take over his stake of 50 per cent plus one share in BMI.
EDITOR’S CHOICE
Air France-KLM signs Delta pact - May-20
Lufthansa seeks BMI cash fillip - May-19
Air France-KLM scraps dividend - May-19
Branson hits out at BA/AA tie-up - May-14

He exercised the option in October last year to sell the stake for about €400m ($551m). The deal had been expected to be completed by mid-January.

The transaction was delayed, partly by the longer than expected time it took to gain approval from the European competition authorities, but Brussels finally gave the go-ahead last week.

In the meantime, tensions have been growing between the two sides. Lufthansa sought to force Sir Michael to make a capital injection of about £100m into BMI to strengthen the airline’s balance sheet ahead of a transfer of the shares.

Sir Michael believes the demand for extra finance is a device by Lufthansa to try to force down the price, which had already been agreed in the original contract 10 years ago.

His company, BBW Partnership, said Wednesday night it had issued proceedings in the High Court in London to declare that BBW had “fulfilled all the necessary regulatory requirements to complete the sale of BMI to Lufthansa and seek that Lufthansa be required to complete the acquisition of the shares”.

Lufthansa said Wednesday night it had not been informed of the legal action. “We have not received any communication,” it said.

The German group owns a stake of 30 per cent minus one share in BMI, while SAS Scandinavian Airlines holds the remaining 20 per cent.

Sir Michael’s decision to take legal action follows a warning by Stephan Gemkow, Lufthansa chief financial officer in an interview with the FT this week, that the German group could walk away from the planned takeover unless Sir Michael agreed to inject more capital.

Under European law, aviation regulators must be satisfied about an airline’s business plan and its funding in order for it to keep its operating licence.

The UK carrier is the second-largest airline operating at London Heathrow. Its main strategic asset is its control of about 11 per cent of all the take-off and landing slots at the airport.

[Desert Diner]

In the meantime, tensions have been growing between the two sides. Lufthansa sought to force Sir Michael to make a capital injection of about £100m into BMI to strengthen the airline’s balance sheet ahead of a transfer of the shares.

Sir Michael believes the demand for extra finance is a device by Lufthansa to try to force down the price, which had already been agreed in the original contract 10 years ago.

I wonder if things went better for Sir Michael and bmi. Would he still go to court to force LH to buy him out?


Sir Michael’s decision to take legal action follows a warning by Stephan Gemkow, Lufthansa chief financial officer in an interview with the FT this week, that the German group could walk away from the planned takeover unless Sir Michael agreed to inject more capital.

Under European law, aviation regulators must be satisfied about an airline’s business plan and its funding in order for it to keep its operating licence.

How bad off exactly is bmi these days?

[dl777jet]

Will be difficult for Lufthansa to go this way. In principal Lufthansa is right, probably LH agreed to buy a intact company with all the licenses in place. Now the to be delivered item does not fulfill anymore one crucial item, the operating license and therefore the to be delivered item is not of the quality described. The only weak point in this is, that the agreement has been concluded many months before and at the time probably the situation in BMI was differently than now. So the sale was just awaiting EU approval and then completed. I think LH has a 50 to 50 chance to succeed with this strategy, depending on the court.

[Deep and fast]

bmi has an operators licence otherwise we wouldn't be flying! As for the 3 months working capital, I cannot say.

I feel bmi management may have been a bit slippery with the accounts. Posting large write down losses and clearing the decks in a fiscal sense for 2 reasons.

1 To use as a tool to force the workforce to accept a wage freeze.
2 To make the the figures next year under the control of Lufthansa seem like there has been a magnificent turn around.

This would give certain management a chance to hold their current posts ie NT.
Lufthansa may have also been playing the game too. Application to the EU was only applied for in April. Why the delay? In my mind, they knew the financial situation at bmi like any other airline would deteriorate in the intervening months so having a stronger negotiating position. They may also feel Bishop could inject some of the money made from the Euro exchange rate change.

bmi have weathered the storms of economic downturn in the past. Bishop has been good in that, but now it is time for a new start with Lufthansa and I wouldn't bet against SMB that this is what will happen.

D and F :8

[ZeBedie]

Presumably Midland will survive, but in a very different form, if Lufthansa don't do the deal?

[Deep and fast]

[QUOTE]Presumably Midland will survive, but in a very different form, if Lufthansa don't do the deal[QUOTE]

Yeah, unprofitable and shrinking with management who have a poor relationship with their staff!

D and F :8

[stormin norman]

With this row being splashed over all the press, I wonder what effect this will have on forward bookings ?

[Facelookbovvered]

Its a bit of a bugger when people don't do what they are contracted to do, a bit like the pay deal...........oh i forgot BALPA isn't taking bmi to court for breach of contract!!!!!!!!!

[Deep and fast]

[QUOTE]oh i forgot BALPA isn't taking bmi to court for breach of contract!!!!!!!!!/QUOTE]

I thought they did 2 weeks ago.

D and F :8

[powdermonkey]

"Yeah, unprofitable and shrinking with management who have a poor relationship with their staff!"

Mmmmmm now isn't that the current trend in ALL airlines? :ugh:
At least airline management is constistant globaly!

[TLBird]

Think you may find BALPA did there own little deal!:suspect:

[max nightstop]

Really? What little deal is that? AFAIK BALPA are still pursuing the issue of the terms of a deferral. Maybe they are hoping/waiting for a change of ownership and attitude.

[SR71]

But if LH win and the deal collapses, they're still presumably stuck with their 30% share and a super pi**ed off majority share-holder...

BD's creative accounting practises look like they've finally been rumbled...

[racedo]

Its all down to price negotiation.

Court will be unlikely to decide on the issue as both sides will be forced to declare lots of dirty laundy in public.

Expect a "Compromise" to be reached after about a week.

[max nightstop]

I bet that Bishop's laundry is considerably more dirty than that of LH. In every sense.....:hmm:

[shafted@work]

So its official. LH shall as of 01 july own 11% of the LHR slots.........
Surely that's gonna smart for BA and cripple Virgin??
Rumour is once traffic rights are sorted, investment starts to connect the Mid haul (mid/east) flights to US.....

Lufthy got a great deal for what (with investment/reorganisation) will be the lowest cost highest asset (slots) operation in the U.K.

Willie and Branson need to pull their fingers......... out fast!!

:eek:

[Carnage Matey!]

I suspect thats a rather arse about face interpretation of it. Lufthansa were doing their level best to get out of the deal, paying way over the odds for bmi and a collection of slots that don't actually work that well for long haul flying. What makes you think Lufthansa can build a hub a profitable long haul hub at LHR when BA and Virgin are struggling to do it at the moment and bmi never did.

[mechelec]

Shafted you got a link to the 'official' notice?

:)

[Mungo Man]

Article - WSJ.com (http://online.wsj.com/article/BT-CO-20090622-707715.html)http://online.wsj.com/article/BT-CO-20090622-707715.html

[lexxity]

It's on the bmi intranet. Only took since last October! Well lets hope it works out for the best for all of us around the network.

[shafted@work]

Carnage,

The small print shows that lufthy didn't have to buy bmi at all in the end, so they must have paid a price they think its worth.
Sir Michael wasn't prepared to invest in the long term, as he won't be around. Instead bmi have been simply polishing the gold until now. sadly the dire situation the industry is currently in, has allowed Lufthy to successfuly negotiate him down.

It is fact that bmi operate cheaper than virgin and much cheaper than BA.
It has 6 times as many slots as VS and 1/4 of those of BA.
It has very few bilaterals holding it back.

With the correct hardware and Lufthy synergies, systems and investment their slots can cherry pick the routes, and undercut all incumbent operators. The fact that for the past 10 years Lufthansa have pubicly stated its ambition to own bmi (only after Sir Michael's call did they change) must mean it's always been part of theirs (and stars) long term strategy.

This example aside, we are entering uncharted territory for the aviation industry world-wise. Only those airlines with deep pockets, realistic cost bases and strong partners can survive.

[fmgc]

So what is the plan for BMI?

Will it stay as it is and run as it is now?

Will it be swallowed up by Lufti, and become part of the German airline? If so what happens to the staff? (Like what happened to AirUK)

What will happen to the longhaul operation?

Is Baby part of the deal, and what will happen to them?

[AltFlaps]

Mainline, Regional and Baby are all part of the deal.
At present, only the LH board knows what the plans are ...

Baby has a board meeting on Wednesday ... something may come from that

[CarltonBrowne the FO]

My guess is that regional will stay part of the picture; quite aside from the fact that they have been generally profitable for the last few years, they allow some of the routes we have to keep doing (LHR-ABZ for instance) to be self-supporting, rather than a net loss if an A319 is used.
I am less sanguine about the future of baby. There is a chance they may be kept (Lufthansa also owns the name "BritishWings") but I would doubt if they would keep the name- they also need some newer aircraft.
It is worth noticing that there is no Star Alliance presence on one of the busiest longhaul routes in the world; LHR-New York. Admittedly, the competition on that route is intense right now- to the point that no one is making money on it, but Lufthansa has always been good at the long game.
All the above is entirely hypothetical- for all the actual hard information we have, LH may plan to use those slots to send bizjets to LHR carrying the board's wives to shop in Harrods (remember, you heard that here first).
It is shaping up to be an interesting summer...

[Confirmed Must Ride]

Don't forget that CO joining *A this year so there will be LHR-NYC coverage

[16024]

Don't know about that. I am aware that the name was registered ages ago.
Tell you what, though. If Lufty doesn't want baby you can form a queue behind me...
We'll have to drop the bmi bit, obviously.
We could call it smile baby!
That would be the semantic opposite:)

[VICKERS VC10]

I would imagine LH passing on some slots to Swiss to re-enter the LHR-GVA market.

Vickers VC10

[OliWW]

with bmibaby already releasing part one of their summer program for 2010 I could doubt they will change that now, get things sorted with regional first. I dont surpose that flybe want anymore E145's though.

name change which has just occured to me, could become Lufthansa Midlands :ok:?

[Skipness One Echo]

I would imagine LH passing on some slots to Swiss to re-enter the LHR-GVA market.

I agree, though they have a foothold with a weekend operated RJ100 operaton already. Be good to see it back.

[rutankrd]

The Two Weekend GVA services are seasonal only, and given that LX have severely wound back ops their, why return the LHR.

Fact is O&D are adequately served through LCY and any *A connections are routed through FRA/MUC or Zurich for obvious reasons.

[Count von Altibar]

The plan for bmi mainline to be announced early autumn. Expect bmibaby and bmi regional to be offloaded though, as they've already stated.

[Erwin Schroedinger]

It a shame that the current states of many economies will mask any short term effects of Lufthansa management input. In the long term, it can only be good for the business that decent management will finally be able to incorporate what has been an airline with tiny(baby?)-minded management and unrealised promise into part of its own potentially world-beating organisation.

Lufthansa could utilise the current lull in business to replace the existing mob of ill-chosen and poor managers at all levels and replace them with their own people. The workforce and BALPA won't be a problem in this respect - they have historically demonstrated little stomach for resistance, and none for outright confrontation. Whether the maximum potential of such a workforce has ever been realised in such an oppressive environment is quite obvious. If you want the best from people, you must treat them properly.

As to whether such improvements will be good for employment, that is doubtful. The current climate must (should) lead to redundancies. Eventual improvements in efficiency, which any decent management will find easy to identify, will inevitably lead to a reduced workforce. History demonstrates that acquisitions lead to shrinkage, occasionally massive.

And lets be brutally honest - Lufty bought a wad of Heathrow slots. That's all they're interested in.

[Nakata77]

Bmibaby will be offloaded - possibly Jet2 or U2 will buy them / merge them

Regional will definately be sold off - LH stands to make a nice little bit of cash from that as it is profitable

They will need that extra capital to invest in sharpening the bmi mainline operation - new a/c, paint job and re-branding. who knows it may even involve a formal tie up with Virgin.

[SR71]

Amazing because I heard the bmi workforce at LHR would be cut in half (too much driftwood there), a load of LH crew and airframes re-located and bmibaby and Regional would be left to do their own thing....you know...because they're actually making some money...

NOT.

:ok:

[K.Whyjelly]

Amazing because I heard the bmi workforce at LHR would be cut in half (too much driftwood there), a load of LH crew and airframes re-located

Would that be a load of LuftHansa or a load of Long Haul crew SR71????

[EI-BUD]

Bmi have a significant share of the LHR slots, however, what they have is not that much within the context of having a widespread hub at LHR. From what I can see they only have a limited number of routes albeit some at high frequencies. They have dropped routes and chopped and changed slots alot in the last few years there.

There has to be merit in a tie up with Virgin if they really see an opportunity at being a real challenge to BA. Singapore Airlines have a large share of VS and through the Star Alliance there is surely an aspiration to get something strong going in one strong brand to compete with BA and Once world at LHR?

I can see a new brand emerging in the guise of united Virgin and Bmi, especially when so much media hype about BA´s challenges at present (not ignoring the fact that most airlines are having a hard time at the moment)

What does anybody else think?

[Flightrider]

I suspect that time will prove Nakata77 to have been very close to the mark indeed with the comments posted above.

[TwinAisle]

Guys - let's look at this through business and money eyes.

Baby has no value to any other airline:

It has a brand that will need to be changed (can't see them being bmi anything, and calling it 'baby' will be a nightmare in brand protection terms);
It has relatively old, leased 733s and 735s, and the market is awash with them;
It has few useful slots - and let's face it, most of the airports it operates to would soon find room for someone else in the current climate;
It has an AOC, which is nice, but any airline that looks to buy them will already have one.


Baby has four options:

stay where it is (as long as LH want it, which doesn't seem to be long!)
go it alone (tough in this market, and it will need unpicking from bmi - it is NOT a standalone business right now)
sell itself for a BI/MBO
admit defeat and close it.


If I were LH/bmi - I'd go for Option 3.

TA