Lufthansa takes steps to sell BMI

Lufthansa has stepped up its moves to sell BMI British Midland, hiring investment bank Morgan Stanley to explore its options and appointing a new chairman to oversee a potential restructure.

The German airline announced Vagn Ove Sorensen would take over as BMI chairman with immediate effect on Friday, transferring from Lufthansa subsidiary Austrian Airlines where he held the chairman’s role.

Sorensen’s appointment suggests Lufthansa recognises it will need to break up BMI to sell it. In a statement, Lufthansa said: “Vagn Sorensen’s experience with corporate restructuring is of particular importance and value at this critical period.”

Stefan Lauer, who had been BMI chairman since the German carrier’s takeover in June 2009, will remain on Lufthansa’s executive board.

BMI made a loss of £106 million in the first six months of this year, leaving the Lufthansa group with a mere euro3 million (£2.6 million) half-year profit. The UK airline has struggled to make a profit out of its greatest asset, its base at Heathrow, despite being the second-largest carrier at the airport with 11% of the slots.

Analysts have suggested Lufthansa will struggle to find a buyer for the entire BMI group, which includes bmibaby and BMI Regional.

British Airways’ parent International Airlines Group is known to be interested in BMI, but is unlikely to gain regulatory approval for a deal that would give it control of more than half the slots at Heathrow.

Virgin Atlantic would be keen, but would require a new partner or owner to put up the cash. That leaves the Gulf state carriers as the most likely suitors, with the Heathrow slots the prize.

However, Lufthansa may choose to keep the operation at Heathrow while it divests what it can of the rest of BMI, with Flybe a possible buyer for the regional operation. Lufthansa has already closed the BMI base at Glasgow this year and will shut the bmibaby bases at Manchester and Cardiff this winter.

BMI is the fourth largest carrier in the Lufthansa group with a fleet of 60 aircraft and 3,800 employees. It flew 2.75 million passengers in the first six months of the year.

The upheavals in North Africa and the Middle East have had a severe impact on the carrier, which dropped long-term plans to fly to the US from Heathrow in face of the high volume of transatlantic traffic and turned instead to central Asia, North Africa and the Middle East. However its flights to Tripoli, begun this year, remain suspended and the carrier has been forced to cancel some services to Damascus.

Lufthansa took control of BMI from founder Sir Michael Bishop in 2009 rather than surrender an option to buy out Bishop’s 51% stake. The German carrier originally took a 20% stake in BMI in 1999.

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