Virgin Atlantic is upping its battle with British Airways by confirming it is in talks with Lufthansa to buy
The transatlantic carrier is thought to be eyeing up various options, including a straight acquisition of bmi from Lufthansa, a three-way tie-up deal, or Virgin Group swapping some of its stake in Virgin Atlantic with Lufthansa to pay for the deal.Whatever the eventual arrangement, Virgin is aiming for a direct slice of BA’s market share. Virgin has long coveted Bmi’s 12% share of Heathrow take-off and landing slots, and its medium-haul network offers numerous synergies with Virgin’s 38 planes flying to 30 long-haul destinations.
Virgin has twice before attempted to merge with Bmi in the past but talks broke down over valuation and differences between Branson and Bmi chairman Sir Michael Bishop.
The relationship has been rekindled by Bishop’s decision in October to exercise a put option to sell his stake of 50% plus one share in Bmi to Lufthansa for €400m, giving the German carrier a 80% in Bmi.
Virgin’s has been hugely critical of BA’s expansion plans, saying it wants to create a “monster monopoly” that would hurt consumers.
Sir Richard argues the BA/AA merger would lead to price-fixing and force travel agents to put business their way.
“The competition authorities listened to us twice before and rejected the idea of BA and AA working effectively as one airline because they believed it to be anti-competitive,” Sir Richard said.
But Virgin argues its proposals for Bmi would not harm competition as there is no overlap between their businesses.
Virgin Atlantic chief executive Steve Ridgway said: “Everyone has speculated that it would make sense for Virgin Atlantic and Bmi to combine their long-haul and short-haul networks. There is now a major opportunity to do that and create a new and even more effective competitor to British Airways.”
The merger could however be complicated by ownership structures. Sir Richard owns 51% of Virgin Atlantic, with the rest held by Singapore Airlines. Singapore has also been trying to overload its Virgin stake for two years. Nor is Virgin interested in Bmi’s UK regional business or low-fare airline Bmibaby.