EC Approves Lufthansa/BMI Takeover Deal
By Jens Flottau
The European Commission approved the planned takeover of BMI by Lufthansa without conditions.
The commission said in a statement that it does not see any significant impact on competition when the two carriers combine. It looked at 30 overlapping routes in particular, most of them intra-European, but also some connecting long-haul sectors, such as London-Jeddah and London-Riyadh.
Lufthansa stated that it welcomed the EC’s decision, but cautioned that it was only one of several more conditions to be fulfilled before the deal would be closed. The wording indicates that Lufthansa is not at all happy with the prospect of having to take over a deeply unprofitable airline. The commitment to buy Michael Bishop’s majority stake in BMI dates back to 1999. It became reality when Bishop placed his put option earlier this year.
According to industry sources, Lufthansa is pointing at a possible liquidity crunch at BMI that would have to be resolved to keep the Civil Aviation Administration (CAA) from pulling BMI’s operating license. Those sources say Lufthansa wants Bishop to contribute about GBP100 million to the capital increase. But the current majority owner refuses to do so, claiming that the airline is not cash-strapped to the extent indicated by Lufthansa.
Bishop has a keen interest in delaying any kind of capital injection until after the deal is closed — the money would have to come from Lufthansa and 20% shareholder SAS alone, while he would no longer be involved. Lufthansa, by contrast, wants Bishop to bear some of the financial burden caused by the current state of the airline. BMI posted a loss of GBP99 million last year, and its results in previous years in which it eked out small profits heavily benefited from a European joint venture with Lufthansa and SAS in which losses were shared.
If the CAA in effect ended up pulling BMI’s operating license because the airline no longer complied with minimum cash reserve limits, Lufthansa may have a case of getting out of the 1999 contract. BMI would be in breach of CAA regulations if it didn’t have cash for three more months.
According to the original takeover deal, Lufthansa is paying more than GBP300 million for Bishop’s stake, an amount that was deemed large even in good economic times and is even more expensive in the current crisis.
Virgin Atlantic repeatedly said it would be interested in taking over BMI or merging with it, but so far no negotiations have taken place, according to industry sources.
Photo: BMI
