PEST - IAG and BMI acquisition
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International Airlines Group or BA and Iberia are trying to acquire BMI from Lufthansa.
A move which would allow IAG would gain c. 56 additional take-off and landing slots at Heathrow. Lufthansa had bought up most of BMI’s shares in 2008 but has failed to prevent the group losing money.
In November 2011 Geoff van Klaveren from Deutsche Bank observed that this deal would make a big difference for IAG. “It boosts their slots at Heathrow to 54% share from 45%. Given that no new runways are likely to be built in the South East of England in next 10 years; this is a crucial strategic move.” It was hardly surprising that Richard Branson was critical after Virgin failed in its bid for BMI. But perhaps unprepared for a belligerent response from IAG’s Willie Walsh. Walsh observed that a financially weak industry had been bad for passengers.
“Clearly the industry is not sustainable with the level of profitability that it has generated historically. I don’t think the consumer has benefited from an industry that is incapable of investing for the future. In America the consumer has suffered because of a lack of profitability,”
Earlier this week, some Labour MPs wanted this acquisition scrutinised by the Office of Fair Trading. The SNP’s Transport spokesman Angus McNeil observed that “It’s a lose-lose situation for Scotland. I fly through Glasgow to London all the time and I believe the takeover will inevitably lead to less competitive pricing and not quite as good a service, because they won’t face as much competition.”
Almost 3 weeks ago, Alistair Darling, the former Chancellor of The Exchequer and Edinburgh MP feared a return to a BA monopoly on London Edinburgh flights, and the Scottish Chamber of Commerce Chief Executive Liz Cameron observed that businesses expected “IAG (to) continue to assure businesses of their commitment to maintaining or improving connectivity to and from Scotland.”
One of IAG’s rivals, Virgin Atlantic also backed the calls for an investigation, claiming passengers should be concerned by the takeover. BA already flies on 60% of BMI routes and that really doesn’t bode well for the future of competition in the market. However IAG disputed the figures in The Herald and pointed out that the “The transaction is subject to competition approval from the European Commission.”
This might be forthcoming if some of BMI’s subsidiary companies BMIBaby and BMI Regional are sold off to rival groups, and excluded from the IAG takeover.
The great unknown is the attitude of the EU competition authorities. The Guardian pointed out in December 2011 that consolidation was seen as a strategy for survival by airlines, one which would limit the number of job losses. Consumers don’t have much choice if airlines go bust.
Ryanair’s attempt to take over Aer Lingus was blocked by the EU, as the new Irish airline would then have a dominant hold of landing slots at Dublin Airport. IAG might find that it has to either give up some of the precious Heathrow slots, or that the deal just doesn’t go ahead.
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