British Airways Owner In Deal To Buy BMI

British Airways owner International Airlines Group (IAG) says it has reached an agreement to buy the airline BMI from Lufthansa.

As Sky's City editor Mark Kleinman revealed in October, the deal will give IAG more than half of all take-off and landing slots at Heathrow, strengthening the group's hold on one of the world's most important transport hubs.

Both parties say they hope to sign a deal in the coming weeks and aim for the sale to be completed by March 2012, although the sale will be subject to regulatory approval.

IAG declined to comment on the cost of the deal.

The news has angered rivals including Sir Richard Branson's Virgin Atlantic which said it had also made a bid for BMI.

"British Airways' hold over Heathrow is already too dominant and we are very concerned, as the competition authorities should also be, that BA's purchase of BMI would be disastrous for consumer choice and competition," it said.

IAG's chief executive Willie Walsh has said he was confident the deal will be cleared by regulators.

He added that it can make a success of BMI, which operated at a loss of £38-per-passenger in the first half of the financial year and has a pension liability of around £100m.

"This is a great story for IAG and also great for the UK economy and for consumers.

"We will expand our networks, particularly on long-haul which is so critically important to the UK economy. The deal will allow us to connect further to the emerging world economies."

BMI has an extensive long-haul network, from Amritsar in India to San Francisco in the US.

Along with the proposed takeover, IAG also revealed a 31% drop in third quarter profits to £313m. Nonetheless, it still outperformed its rivals and analysts' expectations.

A 3.5% rise in passenger traffic translated to a 2.2% growth in revenues for the period.

Mr Walsh said rising fuel prices are the biggest challenge for the airline industry in the short term - IAG spent £1.2bn on fuel in the third quarter.

Nonetheless, the group sees blue skies ahead.

"We are confident of a higher level of profitability in the fourth quarter of this year, even after the negative impact of the high fuel price," said Mr Walsh.

"We expect to deliver a 2011 full-year operating profit of around double the year 2010 profits."