BMI finds UK-based buyer for BMIbaby

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UK carrier BMI has found a buyer for its low-cost subsidiary BMIbaby.

The Derby, UK-headquartered airline has signed a preliminary, non-exclusive contract with an unnamed, UK-based company, which allows BMI to continue looking for other interested parties.

The buyer would take over all of BMIbaby's shares, assets and liabilities, including its fleet of 14 Boeing 737-300 and -500 aircraft, route network and the "continued employment of the existing staff", BMI said.

The transaction is to be signed in the current quarter and completed "shortly" thereafter, the company added. No financial details have been disclosed.

BMI's owner Lufthansa wants to sell BMIbaby and sister operation BMI Regional before the planned sale of BMI's mainline operations to International Airlines Group (IAG), because the British Airways parent will pay a "significantly reduced price" if BMIbaby is still part of the acquisition.

IAG agreed with Lufthansa in November to buy BMI's mainline operations for £172.5 million ($273 million). Both parties are aiming to complete the transaction by 31 March.

The BMIbaby buyer will be able to use the brand for an interim period, BMI said. It added that the buyer is planning to expand BMIbaby's route network in the future.

The fact that BMI has found a buyer for BMIbaby is "certainly a surprise", according to analyst Gert Zonneveld at Panmure Gordon. Given the difficult environment with high fuel prices and strong competition - not only from large budget carriers such as Ryanair and EasyJet, but also smaller players such as Jet2 or regional carrier Flybe - it would be difficult for an airline "without critical mass" to operate profitably.

Zonneveld added that he would not be surprised if Lufthansa sold BMIbaby for virtually nothing or even paid the buyer to take it on. The acquisition price depends on the alternative cost of closing down the operation, especially if there is just one potential buyer.

"Sometimes it is easier to give it away with some money on top than closing it down," Zonneveld said.

Lufthansa could not immediately be reached for comment.