IAG and Lufthansa agree on bmi price

International Airlines Group (IAG) has managed to land the British Midland (bmi) airline after protracted negotiations with current owner, Deutsche Lufthansa.

IAG, the company formed by the merger of British Airways and Iberia, is to pay £172.5m in cash for bmi from its own funds. However, the price is subject to significant reductions if Lufthansa fails to sell bmibaby before competition.

bmi consists of three distinct business units - bmi mainline, bmi regional and bmibaby.

Start your trial of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

As part of the transaction, IAG's Heathrow slot portfolio will expand by up to 56 additional daily slot pairs, giving a "unique opportunity to grow at Heathrow, one of our key hub airports," said Chief Executive Willie Walsh.

IAG's previous target of making an operating profit of €1.5bn by 2015 has now increased by €100m with the bmi acquisition expected to become earnings per share accretive by 2014.

However, IAG will be forced to incur restructuring costs (in regards to bmi) but these will be spread over three years and are said to be significantly lower than bmi's current annual losses.

However, Walsh warned that this restructuring will results in "some" job losses.

The transaction is expected to be completed in the first quarter of 2012 but is subject to regulatory clearance from the European Commission and other bodies. If the deal does not have approval by the end of March, or either party elects to duck out, IAG will have to pay a termination fee of £10m.

BC & JH