virgincrew
Topic Author
Posts: 420
Joined: Sun Oct 03, 2004 1:40 am

IAG Purchased BMI For Only £20m?

Tue Apr 24, 2012 3:37 pm

A report in The Sunday Times states the following:

"British Airways’ purchase of BMI British Midland is the deal — or should that be steal — of the year.

IAG, BA’s parent company, completed the acquisition quietly last week, save for the continued and fruitless protests of Sir Richard Branson, the majority shareholder in Virgin Atlantic.

Analysts and BA investors know it’s a smart deal for BA, consolidating its grip on Heathrow. But nobody has yet twigged just how good it is.

BA said it would pay Lufthansa £172.5m for BMI. That figure would be revised down if two of BMI’s subsidiary airlines, BMI Baby and BMI Regional, weren’t sold before the deal completed.

They weren’t. BA hasn’t revealed what the price came down to as a result, but insiders say it was about £20m. For that, BA receives 42 pairs of runway slots at Heathrow — the proverbial hen’s teeth of world aviation. That’s £476,000 a pair, an absolute snip when you consider slot pairs have regularly changed hands for £5m, and even £10m when a carrier was particularly desperate to push its snout into the Heathrow trough. When BMI valued its slots three years ago, it reckoned they were worth £770m.

While Willie Walsh, IAG’s chief executive, chuckles, BMI’s pilots and other staff fume. Their pension fund has a £100m deficit and has been handed over to the Pension Protection Fund (PPF), the government lifeboat for schemes whose supporting employer has disappeared.

Their retirement payments are likely to be limited to a maximum of £34,000. Long-serving pilots and executives would have expected much more. Lufthansa has tried to ease the pain with the payment of another £84m into a separate fund outside the PPF, but it’s not clear yet whether that will make up the shortfall."

Also there is mention of IAG not being able to find a buyer for BMI Baby / Regional and that a further 800 may go at these airlines !

http://www.travelmole.com/news_featu...?news_id=2001202&c=setreg&region=2
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virgincrew
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RE: IAG Purchased BMI For Only £20m?

Tue Apr 24, 2012 3:49 pm

If this is the case, it would be interesting to see what the board of VS will say, because it will mean that IAG bought BMI for less than what VS bid !
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BestWestern
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RE: IAG Purchased BMI For Only £20m?

Tue Apr 24, 2012 4:10 pm

Quoting virgincrew (Reply 1):
If this is the case, it would be interesting to see what the board of VS will say, because it will mean that IAG bought BMI for less than what VS bid !

Do we actually know if VS actually submitted a binding offer?

But that doesnt make any difference - VS would have bid at the exact same terms and conditions that BA did, so the VS bid (if any) would have fallen by the exact same amount.

Lufthansa group have spent a fortune on Bmi - and got precious little in return.
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lhr380
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RE: IAG Purchased BMI For Only £20m?

Tue Apr 24, 2012 4:29 pm

Quoting virgincrew (Reply 1):

However that price IAG bid would have been paid had they sold Baby and Regional. As they were not sold, the price to shut them down and everything has been taken off. Imagine the price VS would be paying had the VS bid been the one to win??
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moo
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RE: IAG Purchased BMI For Only £20m?

Tue Apr 24, 2012 4:39 pm

Quoting virgincrew (Reply 1):

If this is the case, it would be interesting to see what the board of VS will say, because it will mean that IAG bought BMI for less than what VS bid !

We don't know what the terms of the VS bid were - they may not have been willing to take the additional subsidiaries at all, leaving LH with them.

VS have a history of making completely outrageous bids just so they can laud them for PR value when they are rejected.
 
vv701
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RE: IAG Purchased BMI For Only £20m?

Tue Apr 24, 2012 7:32 pm

Quoting virgincrew (Reply 1):
If this is the case, it would be interesting to see what the board of VS will say, because it will mean that IAG bought BMI for less than what VS bid !

If the reduced figure is £20 million then the situation is:

IAG bid price £172.5 million

Cost to IAG of including bmiBaby and bmi Regional in the purchase of British Midland International £152.5 million.

Net payment by IAG to Lufthansa Group £20 million

Cost to IAG of shutting down bmiBaby and bmi Regional £152.5 million

Total cost to IAG of purchase £172.5 million

Now try substituting the figure reported as being VS's bid of £50 million for the IAG figure of £172.5 million in the above sequence. You will find that Lufthansa Group would have ended up paying VS £102.5 million to take the three airlines off their hands. Were they likely to do that when they could have accepted the IAG bid and received a net positive payment of £20 million and been £122.5 million better off? I do not think so.

Recognise that the discount, be it £152.5 million or some other figure, is in recognition of the Lufthansa Group's failure to sell either bmiBaby or bmi Regional to anyone. Recognise that IAG is accepting it will need to pay out a net £152.5 million (or some other figure) to close down the two airlines it does not want in an orderly manner assuming that they, like Lufthansa Group, cannot otherwise dispose of them.

While it is reported that IAG will continue to try to sell both bmiBaby and bmi Regional there is very little value in their balance sheet. For example their aircraft are all leased, they use British Midland International's facilities like their engineering base at EMA and have no slots of any value. All they have is goodwill and minimal facilities at ABZ. And I doubt that, in this case, the goodwill is worth anything.
 
C010T3
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RE: IAG Purchased BMI For Only £20m?

Tue Apr 24, 2012 10:00 pm

Quoting bestwestern (Reply 2):
Lufthansa group have spent a fortune on Bmi - and got precious little in return.

Well, they increased their slot portfolio at LHR substantially.
 
virgincrew
Topic Author
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RE: IAG Purchased BMI For Only £20m?

Tue Apr 24, 2012 10:03 pm

When you read about LH's current financial problems - I think it's obvious to say BMI has bled them dry ...
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BestWestern
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RE: IAG Purchased BMI For Only £20m?

Wed Apr 25, 2012 12:22 am

Quoting C010T3 (Reply 6):
Well, they increased their slot portfolio at LHR substantially.

And spent how much doing this - close to a half a billion?
Greetings from Hong Kong.... a subsidiary of China Inc.
 
PezySPU
Posts: 281
Joined: Mon Dec 12, 2011 1:27 pm

RE: IAG Purchased BMI For Only £20m?

Wed Apr 25, 2012 6:33 pm

Quoting VV701 (Reply 5):
And I doubt that, in this case, the goodwill is worth anything.

Considering that bmi as a brand is being scraped, you're probably no too far off.

Quoting bestwestern (Reply 8):
Quoting C010T3 (Reply 6):
Well, they increased their slot portfolio at LHR substantially.

And spent how much doing this - close to a half a billion?

Now, I wonder how much would it cost LH to buy all of those slots instead. There is a good in every bad.

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