End of bmi looming as Lufthansa plans takeover.

bmi may not be here much longer

Lufthansa has warned it plans to exercise an option to buy control of bmi by the middle of 2009, with it's main aim of securing valuable slots at London's Heathrow airport.

Lufthansa's Chief Financial Officer Stephan Gemkow says "There are options that put us in the position to acquire the majority of BMI over a foreseeable timeframe". bmi's Chairman Michael Bishop owns 50 percent plus one share of bmi. Lufthansa and Michael Bishop have agreed a series of confidential put and call options that may allow the German-based carrier to take majority control. Bishop has a 'put' option to sell his stake in the company, and Lufthansa holds a 'call' option to buy out Bishop between Dec 2008 and June 2009. Michael Bishop said in a speech yesterday he wouldn't be forced into a sale by another carrier or media speculation. bmi's other principal shareholder, the Scandinavian carrier SAS, has a 20 percent stake, which it wants to sell.

bmi has shaved more than 100 million pounds from costs (such as inflight meals) over four years to better compete with other airlines. The company has also been transforming itself from a predominantly short-haul airline by adding routes to the Middle East and Africa to maximize the value of takeoff and landing slots at Heathrow, Europe's busiest airport.

bmi's Heathrow slot portfolio, second only to that held by British Airways, has become more valuable following the start of a treaty that opens Europe's busiest airport to new entrants on U.S. routes. bmi's slot holdings alone may be worth 1.28 billion pounds. Slots can be sold between airlines for as much as 30 million pounds a pair depending on the time of day.

Lufthansa took Swiss under its wing in March 2005 to expand passenger traffic business amid consolidation of the European air travel sector. The news disappointed frequent fliers, who found that they were being transferred to Lufthansa's Miles&More scheme, which offers considerably less perks such as free flights to its members. Analysts expect bmi's generous Diamond Club frequent flier to close within weeks of its takeover by Lufthansa.