Laura Hailstone/LONDON

British Midland (BM) has confirmed its much-anticipated entry into the Star alliance. This follows Lufthansa's acquisition of a 20% stake from partner SAS for £91.4 million ($150 million). The deal, which will see SAS' shareholding reduced to 20%, gives Star more than a quarter of all movements at rival alliance oneworld's London Heathrow hub.

British Airways - joint leader of oneworld with American Airlines - is viewing the deal with caution. It says it may object if European regulators' treatment of the tie-up is not in line with earlier policies.

The airline says: "We will be examining the BM agreements with Lufthansa and the Star alliance in detail and the regulators' treatment of them. If we felt they were being treated on a different basis from others, we would vigorously seek action."

BM's chairman, Sir Michael Bishop, points out that BA's alliance retains the dominant position at Heathrow. "Star's share of the slots at Heathrow will rise to 27%, compared to BA's 38% and oneworld's 48%," he says. On routes between the UK and Germany, Star has 41% of the seat capacity compared to oneworld's 52%, he adds.

Bishop confirms that the Star link means BM's multiple codeshare agreements with other carriers will be trimmed.

"We will continue with as many as possible providing they don't conflict," he says.

He adds that certain carriers, such as Cathay Pacific and Iberia, have already terminated agreements as they are now participating in other alliances.

BM's plans for long-haul services are effectively in limbo, as the airline waits to see how US/UK bilateral discussions progress. After originally planning to fly from Heathrow, the USA/UK's failure to agree to an open skies deal saw the airline refocus its transatlantic plans at Manchester.

Bishop says that although the airline has an "internal timetable" for Manchester long-haul services, the airline is "not keen to start making large investments in regional long-haul services until we see how the bigger [bilateral] picture develops".

Assuming an open skies deal is eventually achieved, Bishop expects that the combined effect of long-haul services and the Star link will see the airline double in size to 12,000 employees, while the fleet size will grow from the current 52 aircraft to around 80.

Financial analysts now expect the airline to go on to a flotation of its remaining shares currently held by a Bishop controlled holding company.

Source: Flight International