Virgin-bmi merger 'back on the cards'

A LONG-AWAITED merger between Virgin Atlantic and bmi British Midland appeared to be back in play today after it emerged key bmi shareholder Lufthansa is hawking its near-30% stake.

It is understood the German flag carrier wants to ditch its shareholding to get out of a so-called put option agreement with bmi boss Sir Michael Bishop by which he can sell his controlling stake to Lufthansa at a level similar to the inflated price the Germans paid in 1999.

Then, Lufthansa and Bishop signed an agreement which gave the Germans first call on Bishop's stake if he sold, locking in a price equivalent to the £91m Lufthansa paid for its initial 20% holding.

But after two years in which bmi has racked up losses of £30m, Lufthansa has written down the value of its holding and is reportedly hoping to dispose of it to prevent Bishop exercising the option.

One willing buyer of Lufthansa's stake is Virgin Atlantic, which has made no secret of its desire to merge with bmi and which first approached Bishop two years ago.

Uncharacteristically, a Virgin spokesman declined to comment on whether it had been tapped by Lufthansa, but said of a tie-up with bmi: 'We have always said there is a deal to be done.'

Such a deal would give bmi access to Virgin's lucrative rights to fly to the US, while the latter would get its hands on valuable bmi slots at Heathrow from where it flies only to Europe.

Bmi declined to comment.