Lufthansa may prefer to sell British Midland International (BMI) to Virgin Atlantic rather than International Airlines Group (IAG) to avoid giving IAG a competitive advantage.
According to a research note from Credit Suisse, a deal with Virgin, rather than IAG, would of greater benefit to Lufthansa if the terms were equal. The acquisition of BMI would bring IAG's share at its primary hub, London Heathrow, close to the 60-70% mark, it said.
Despite its loss-making position, BMI's value derives from its slot allocation at the London airport, where it has about 8.5% of the total capacity. Credit Suisse values the carrier at around €150m ($206.5 million) taking into account its potential for cumulative losses of €200m in the 2012-2013 period.
Reports last week suggested that IAG is in preliminary talks with Lufthansa over a deal. IAG declined to comment.
Credit Suisse said IAG could gain revenue synergies following an acquisition of BMI by eliminating competition on overlapping short-haul routes, improving its reach to Asia and utilising the strength of the BA brand.
Virgin also confirmed its interest in BMI, raising the possibility of integrating it into Virgin Atlantic to provide feeder flights for the airline's long-haul network.
However, Credit Suisse said it would be more challenging for Virgin to make a BMI acquisition work due to doubt around its financial strength.
Lufthansa is considering its options, although Credit Suisse believes the German carrier is close to a decision.