November 6
By Emma Corlett
WESTCOUNTRY airline Flybe is believed to be working to pull off another major acquisition as the much-mooted consolidation in the industry unravels, Westcountry Business can report.
News of the long-expected sale of international carrier BMI, the second largest airline at London Heathrow, could herald another major opportunity for Exeter-based Flybe to spread its wings deeper into the European flight markets following its acquisition of BA Connect a year ago.
As reported in the Western Morning News in September, Flybe – the fast-growing Exeter-based airline, owned by the wealthy Walker Trust – has been lying in wait for the break-up of a major carrier, enabling it to seek to sever a regional operation in a secondary deal. That opportunity, according to industry analysts, is now lurking in the form of both BMI Regional and the larger low-cost European operation, BMIbaby, with German flag carrier Lufthansa in the throes of taking majority control of BMI British Midland.
Lufthansa said Sir Michael Bishop, BMI chairman, had exercised his option to sell the group his stake of 50 per cent plus one share. Lufthansa already owns a stake of 30 per cent minus one share. The remaining 20 per cent is in the hands of SAS Scandinavian Airlines, which has previously indicated it also wishes to sell.
The two groups were in discussions about the “strategic development and future development of BMI”.
Flybe is widely tipped as the main contender to snap up BMIbaby, which is likely to be its primary target in any subsequent break-up of BMI.
While it is likely to take a keen interest in BMI Regional – the UK’s most punctual airline – it is said to have its eye on the bigger European win.
BMI Regional operates an all-jet fleet from regional airports including Aberdeen, Edinburgh, Glasgow, Leeds Bradford, Manchester and East Midlands to over 14 destinations. However, it carries just 600,000 passengers compared with BMIbaby’s 4.5 million Europe-wide passengers.
One industry watcher told Westcountry Business that BMI regional would offer Flybe a “going concern” with few competition issues, as the airlines overlap on just two routes.
The bigger challenge, though, will be to land the “baby” with the European tickets – a deal that would be similar to a second BA Connect acquisition, the troubled airline it bought for just £1 in a surprise deal at the end of 2007. The deal saw Flybe take on significant losses but it has since returned to profit with strong trading results.
One of the many “troubled” airlines in a market – hit by the consumer credit crunch and soaring fuel prices and forced to cut capacity by 15 per cent – the bulk of BMIbaby would sit comfortably within the Flybe fold although any deal would probably see part of its sold off.
Flybe has a strict “essential travel” brand targeting the business and family and friends market; any deal is likely to see it offload inherited sun-slots.
Flybe has remained tight-lipped for the past week on news of a potential deal – fuelling speculation that it is working hard behind the scenes to broker a sub-deal with Lufthansa once the BMI deal is completed by January 12.
In any event, talks with Lufthansa are likely to continue as it builds up a power base across Europe as the knight riding in to rescue stricken airlines from collapse. It can be no coincidence that last week, after the BMI deal was announced, senior Flybe executives were seen boarding a plane to Frankfurt, home of Lufthansa.
The carrier is taking a leading role in the consolidation of European aviation as it takes advantage of its financial strength.
Earlier this year Lufthansa took over a 45 per cent stake in Brussels Airlines with an option to acquire 100 per cent in 2011. It is also in negotiations to buy strategic stakes in loss-making Austrian Airways and Alitalia, the latter in competition against Air France-KLM.
An insider told the WMN: “Lufthansa will be key players and obviously looking for partners to help with the various pieces of the acquisition of a large number of relatively regional airlines.”