British Airways and Virgin Atlantic have resumed their bitter, decades-old rivalry in a suitors' duel over the airline bmi.
Bmi's owner, the German national carrier Lufthansa, confirmed that takeover talks were underway with Virgin Atlantic as well as at BA's parent, International Airlines Group. "We can confirm that we are also in talks with Virgin Atlantic," said Lufthansa, which hopes to make a final decision on the auction winner by the end of March.
IAG had emerged as the frontrunner in November when it confirmed that it had reached "an agreement in principle" to acquire bmi, which would take its share of slots at Heathrow from 45% to 53%. That brought immediate warnings from BA's arch-competitor in the UK-to-US market, Virgin Atlantic, which said a takeover could be bad for consumers by allowing its rival to raise fares on routes to and from Heathrow.
Virgin Atlantic is now hoping to capitalise on those concerns with its bid. It is offering a deal that would expect less scrutiny from officials at the European commission, the authority responsible for competition concerns within the European Union, and therefore be signed off more quickly.
The carrier founded by Sir Richard Branson, who co-owns the business with Singapore Airlines, controls just 3% of the slots at Heathrow. The airline said today : "We have signed a terms [of agreement] sheet. We have long said that we remain interested in bmi and that we remain in talks with Lufthansa."
Both bidders are now conducting due diligence, amid reports that Virgin Atlantic has bid £50m for the loss-making carrier, which reported an operating loss of €154m (£131m) for the first nine months of the year. Andrew Lobbenberg, analyst at Royal Bank of Scotland, said the news was "straightforwardly adverse" for IAG, which was created this year by the merger of BA and Spain's Iberia. "The probability of them winning bmi looks lower today and if they do win it, it seems likely it will be for a higher price than they previously might have thought," said Lobbenberg.
BA has reportedly bid £100m for bmi and analysts believe it might have to raise its price further in order to dissuade Lufthansa from choosing the swifter option of a Virgin Atlantic deal. One legal expert said Virgin Atlantic appeared to hold a regulatory advantage owing to its much smaller share of the Heathrow slots market, even in combination with bmi.
Julianne O'Leary, head of competition at the law firm Stephenson Harwood, said: "From a competition perspective, the Virgin Atlantic deal does indeed appear to raise fewer issues."
It is also understood that Etihad, the Abu Dhabi-based carrier, has dropped its interest, leaving just the two parties in the race. An IAG spokeswoman said: "IAG and Lufthansa continue to negotiate about the sale of bmi. Lufthansa has kept us appraised of other parties involved in the process."
Competition over the lucrative transatlantic market has been at the heart of a series of spats between BA and Virgin Atlantic, most recently over the formation of an alliance between BA and American Airlines that allows both carriers to co-operate over fares and scheduling – anathema under conventional competition rules.
IAG's boss, Willie Walsh, said this year that he would be interested in acquiring Virgin Atlantic for its slots, in an apparent dig at the airline's founder. "If it is someone from within the industry, then I don't see that they'll want to retain the Virgin brand, particularly a brand that is so intrinsically linked to a personality." Walsh was speaking after Virgin Atlantic underwent a strategic review that has yet to yield a transformative sale, takeover or merger.
