SAS keen to sell BMI stake, dissolve codeshares
From todays FT:
SAS Scandinavian Airlines is keen to dispose of its 20 per cent stake in BMI British Midland, the UK airline, and is determined to withdraw from its heavily loss-making joint venture with BMI and Lufthansa on European routes as soon as the contract can be dissolved.
Jørgen Lindegaard, SAS chief executive, said in an interview with the Financial Times, that the joint venture had already cost SAS alone SKr1.5bn (£105m) in losses between 2000 and September this year. A loss for SAS from the venture of SKr450m was expected this year.
Under the terms of the so-called European Co-operation Agreement (ECA), which came into effect in January 2000 and runs to the end of 2007, the three airlines operate a revenue and profit-sharing joint venture comprising their European short-haul routes to and from Heathrow and Manchester.
Of the three carriers BMI operates the largest number of routes covered by the ECA, but it takes only 10 per cent of any losses, while Lufthansa and SAS each carry 45 per cent.
“It is a stupid contract, but there is nothing I can do about it,” said Mr Lindegaard.
The results of the venture had been very different to the expectations, when the deal was agreed in 1999, he said and had been “very expensive“ for SAS. “We would like to be out of this, but it is very difficult to get out.”
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In the years since the ECA was formed, the aviation sector has been rapidly restructuring, however, with the network carriers running up heavy losses in most cases on their short-haul European operations in the face of fierce competition from the new breed of low cost carriers.
BMI secured the favourable agreement to deflect a large part of any losses in the ECA joint venture, as part of the wide-ranging deal struck with Lufthansa and SAS in late 1999, when the German airline agreed to buy an initial 20 per cent stake in BMI from SAS.
Lufthansa currently holds a stake of 30 per cent minus one share in BMI, SAS 20 per cent, while Sir Michael Bishop, BMI chairman, controls a majority stake of 50 per cent plus one share.
“We will look if a sale of the 20 per cent is an option,” said Mr Lindegaard.
The German airline also admitted at the beginning of the year that it had examined a possible sale of its BMI stake, but its options are limited, while Sir Michael controls the majority stake.
Lufthansa is exposed to bigger liabilities than SAS, as it gave Sir Michael various put options enabling him to sell a majority interest to the German group at agreed minimum exercise prices.
Sir Michael has a put option to sell a further 10 per cent stake to Lufthansa up to December 2008, and another option to sell Lufthansa additional shares in the period from December 2005 to June 2009 making the German carrier the majority owner in BMI.
Lufthansa told investors in the summer of 2004, that the agreed minimum exercise prices for the put options were “significantly above the current value of the underlying shares.”