Flybe has emerged as a potential runner in the race to buy BMI from Lufthansa. The regional carrier is being tipped to make a joint bid with British Airways.

Flybe is understood to have registered its interest in buying part or all of BMI, according to the Times. It could possibly tie-up with BA, which has also expressed an interest in buy BMI but might fall foul of competition regulators as a sole bidder due to its dominant share at Heathrow.

A successful bid by Flybe would avoid problems with competition watchdogs, and would also thwart Virgin Atlantic, which is considering its own bid for BMI.

BA already holds a 15% stake in Flybe, but has dismissed speculation of a joint bid, saying: “We are not in discussions with Flybe on this issue.”

BMI is expected to lose £170m this year on a turnover of around £1 billion – however it is seen as a key prize because it hold 11% of Heathrow runway slots, second only to BA.

Earlier this year Lufthansa paid founder Sir Michael Bishop £223m to take control of BMI, fulfilling a deal struck a decade ago. It is now expected to sell the airline on, with BA, Virgin and now Flybe considered the front runners.

Industry bankers say interest from other big international airlines, such as Etihad and Emirates, cannot be ruled out.