There are media rumors in both the UK and Germany that Lufthansa may be planning to sell its stake in BMI after being threatened with a downgrade by S&P and Moody’s.
From Lufthansa’s perspective, BMI has been a thorn in its side for some time. Although it only took an 80% stake in BMI is June, the purchase was the result of an agreement a full ten years ago, when Sir Michael Bishops planned to sell shares to Lufthansa at a pre-arranged price.
Additionally, BMI has performed badly in relation to its other Lufthansa subsidiary peers:For the full year 2010, Swiss had a profit of €298 million. Germanwings lost €39million , Austrian had a loss of €66 million, and BMI posts a loss of €145 million.
So what can conservative Lufthansa do to rectify the situation? One approach for Lufthansa would be to break the airline , sell some of its Heathrow slots off separately and thus retain a controlling share in the airline.
However, sources say that Virgin are interested in the struggling airline and have already had preliminary discussions with Lufthansa . If successful, the combined Virgin/BMI airline would control 13% of slots at Heathrow. The combined airline may then be able to wield the power of BMI’s shorthaul traffic with Virgins long haul. This powerful entity would form a strong and dynamic competitor to BA’s offering.
The board of Lufthansa have plenty of options to consider but given their slow approach to move things forward, we might be waiting some time to find out what their final decision is.