Virgin and IAG in race to buy Lufthansa's BMI

Rivals go to regulators amid fears IAG could gain 55% of lucrative Heathrow slots

Virgin Atlantic is vying with British Airways' IAG in the race to buy their smaller rival BMI, as its parent – the German airline Lufthansa – studies options for the loss-making business.

Virgin said yesterday it was in discussions with Lufthansa and expressed concern about the possibility of BMI falling in to the hands of IAG, which has also approached the German carrier. "[We] have confirmed our interest in acquiring BMI," it said.

Although loss making, BMI has lucrative assets in the form of flight slots at London's Heathrow; it controls about 10 per cent of the airport's take-off and landing slots, which were estimated to be worth around £400m by Citigroup analysts last month.

British Airways is the only airline with a bigger share, controlling around 44 per cent of the slots at Heathrow. With the 1 per cent controlled by its sister carrier Iberia, IAG is the dominant airline group at the airport.

Eyeing the potential competition hurdles faced by IAG, Virgin Atlantic, which is majority-owned by Sir Richard Branson's Virgin Group, also confirmed that it was talking to regulators.

"We are ... very concerned about the competition ramifications of an IAG purchase of BMI, due to BA's dominant position at London Heathrow, the world's busiest international hub, which is completely full," Virgin Atlantic said.

"We are talking to the regulators about the need to protect consumers' interests and choice and to ensure that overall competition in the market is preserved."

IAG's chief executive, Willie Walsh, has made no secret of his interest in taking over BMI. Speaking in Dublin earlier in the week, he told Bloomberg that BMI and the Portuguese carrier TAP were "the only two we're actively interested [in] at this stage".

His opposite number at Virgin Atlantic, Steve Ridgway, has been equally forthright about his interest in BMI. Lufthansa declined to comment on interest from either airline last night, saying only that it was still looking at various options for BMI.

It added that the process could result in a full or partial sale but stressed that no decision had been taken.

The German group, which took control of BMI from Sir Michael Bishop just over two years ago, is hoping to either turn around the ailing business or put a lid on the losses it generates. Last year, Lufthansa recorded €1.1bn in profits; BMI, in contrast, booked a 2010 net loss of £124.5m.

Adding to the pressure, Lufthansa, in common with the wider aviation sector, is facing headwinds from the slowdown in global economic growth and high fuel prices, with recent figures from the International Air Transport Association showing that, compared with July, international airline traffic had slowed in August.

"The industry has shifted gears downward," the body's director general, Tony Tyler, said at the time. "The pace of growth in passenger markets has dipped and the freight business is now shrinking at a faster pace. With business and consumer confidence continuing to slump globally there is not a lot of optimism for improved conditions any time soon."