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29/10/2008 - LH Pt 1: Lufthansa To Control BMI & Become 2nd Largest At Heathrow While Also Trimming Expansion
As Lufthansa's (LH) net profits fall 75% in the 3rd quarter of 2008 and it cuts it spending by US$318mil, the airline has announced it will be purchasing the controlling stock of BMI/British Midland (BD) for £320 (US$511mil).
Lufthansa currently owns a 30% (minus 1 share) and SAS owns a 20% share in BMI, while BMI Chairman Sir Michael Bishop controls 50.1% of BMI's shares. This sale will give Lufthansa not only 80% control over BMI, but it will also give Lufthansa substantial access to the highly sought after, and financially valuable Heathrow slots.
Once the deal to take over the controlling stock is completed by the 12th of January 2009, following regulatory approval, Lufthansa will control 11% of London Heathrow's landing/departure slots.
What I find most interesting about this sale of Sir Michael Bishop's shares is Airliner World's report in August of 2008 on the profitable BMI that states the following after an interview with Sir Michael Bishop " A year ago it seemed likely that the venerable knight would decide it was time to call it a day. But 12 months is a long time in the aviation business and Sir Michael may put off selling the airline for another two or three years in the hope that the economic climate will improve."
I know that 3 months is a long time in the airline industry, that that quote following the interview leaves a lot of room for question, however BMI has remained profitable and expanding as an airline. In the face of British Airways slashing UK domestic service, most notably service in Scotland, BMI has remained solid in providing domestic service to 10 significant airports within the United Kingdom.
As a member of BMI's Diamond Club, one of the most generous frequent flyer programs available within the Star Alliance, I have to wonder how long it will take for Diamond Club to become Lufthansa's Miles & More frequent flyer program.
Lufthansa's Miles & More frequent flyer program is currently used by not only Lufthansa, but also Swiss International Air Lines, Austrian Airlines, LOT Polish, Air One, Croatia Airlines, Adria Airways and Air Dolomiti.
This take over of BMI's controlling stock will be interesting to watch. It is likely that Lufthansa will reallocate a number of landing slots to Lufthansa flights to maximize their potential usage of the Open Skies agreement.
Hopefully BMI will remain BMI, flying BMI colours, and continue to expand. The airline has seen significant growth in the past few years and has been building its route structure with the acquisition of B-Med from British Airways. It would be shame to see this airline lose its identity and fade fully into Lufthansa.