Lufthansa under threat of legal action

bmi chairman to try and force takeover

bmi chairman Sir Michael Bishop has begun legal proceedings against Lufthansa in an attempt to force its takeover of the struggling British airline.

In October Sir Michael exercised an option requiring the German carrier to buy his controlling stake of 50% and one share in bmi.

But Lufthansa said this week that certain contractual conditions have not yet been met, and feared bmi could lose its licence for breaching aviation regulations.

A spokesman for Sir Michael's company BBW Partnership confirmed that legal papers had last night been issued to the High Court in London.

The spokesman said: "All pre-conditions have been fulfilled, and the contractual acquisition of the shares should now take place."

 A Lufthansa spokesman said legal letters received today were "being examined" by the airline's legal team.

Lufthansa said it was "committed" to a takeover of bmi as agreed in an original deal struck with Sir Michael in 1999.

"We are still looking to take over these shares, but as our cfo also recently said, we need to make sure that the company is in a state that has been agreed in the conditions of the takeover," Lufthansa's spokesman said.

The legal proceedings follow comments made by Lufthansa's cfo Stephan Gemkow yesterday (May 20).

Mr Gemkow told the Financial Times certain conditions of the takeover had not been met, and that a walk out on talks was possible.

Mr Gemkow said bmi's weak financial condition, made worse by a record £100m loss last year, was holding up talks.

He was quoted as saying: "We do not intend to walk away from the deal.

"What we want to have is the company in its contractually agreed state and that means the company has the licences it needs to operate and the funds it needs to operate. This is contractually agreed.

"We have a situation in which, to our understanding, the conditions have not been met.

"If they are not met, one day we will walk away."

A £100m cash row erupted last week when Lufthansa asked shareholders to recapitalise bmi.

Lufthansa is concerned over a UK CAA rule forcing an airline to have enough cash to operate for at least three months or risk losing its licence.

It has been claimed Lufthansa's cash demand is an attempt to sweeten the takeover of bmi which has been hit hard by the economic downturn.

Lufthansa which currently owns 30% of bmi, agreed to increase its stake to 80% for a reported £350m.

The remaining 20% is held by Scandinavian airline SAS which has said it also wishes to sell.

bmi is the second largest airline at London Heathrow with 11% of the valuable landing slots.

But bmi has suffered from a fall in demand for travel, reporting a record loss of £99.7m for 2008.

www.lufthansa.com   www.flybmi.com