Lufthansa could be poised to offload its loss-marking subsidiary BMI to Virgin Atlantic as it grapples to raise cash.

The German carrier took full control of the Heathrow-based carrier just two months ago but is now eyeing a sale to Richard Branson’s Virgin following a deterioration in its cash reserves and credit-rating downgrades by both Standard & Poors and Moodys.

Transport bankers say Lufthansa has already held preliminary talks with Sir Richard over a complete or partial sale.

The airline has been hit by the downturn in the aviation sector, posting a first-half loss of €216m (£187m), and has already cut its daily Frankfurt-Portland service.

Reports suggest it may already be in talks with Virgin over a complete or partial sale. Another option is breaking up BMI and selling its Heathrow take-off slots and regional operations separately.

Any takeover would dent British Airways’ dominance at Heathrow, where it runs 41 percent of the outgoing flights.

However a sale to BA of some of BMI’s take-off and landing slots at Heathrow is also under consideration, while BMI’s regional operations could go to a rival budget carrier such as Flybe.

Stephan Gemkow, Lufthansa’s chief financial officer, hinted at a possible disposal to trade magazine Aviation Week last month: “It takes two to tango. If we find the right partner, we will dare to dance.”

But the airline has refused to comment on speculation that Lufthansa may be its new dance partner.
The deal might take the form of BMI and Virgin merging – the combined airline would have about 13% of Heathrow’s flights.
The merged group would also be a huge strategic boon, and connect BMI’s short and medium-haul network with Virgin’s long-haul flights.
Kieron Daly, editor of Air Transport Intelligence, told The Telegraph: “With the situation Lufthansa have got themselves into, a quick solution looks attractive, but they are famous for playing the long game, so if anybody is going to resist being bullied by the market, it’s them.

“It all comes down to whether Lufthansa have any long-haul aspirations in London. If they don’t, then the competitive impact of a sale will be very small. But the impact on BA could be enormous.”