German airline Lufthansa is close to signing a memorandum of understanding (MoU) to sell British carrier bmi to International Airlines Group , sources familiar with the deal said.

IAG, formed by the merger of British Airways and Spain's Iberia, and UK carrier Virgin Atlantic are among a handful of bidders for loss-making bmi.

One source close to the talks said a draft agreement between IAG and Lufthansa over the sale of bmi's main airline could be announced as soon as Friday when IAG announces third-quarter results.

Earlier on Thursday, two people close to the deal told Reuters that Lufthansa would enter exclusive talks to sell bmi to IAG in the next few days, eclipsing an offer from rival bidder Virgin Atlantic.

The process has accelerated and gained fresh momentum. The start of exclusive talks -- most likely with British Airways parent IAG -- is expected in the next few days, a source close to the sale process told Reuters.

A source close to Virgin Atlantic told Reuters the airline was unlikely to succeed with a bid for bmi.

Bmi comprises three underperforming businesses: a traditional airline serving Europe, the Middle East and Africa; bmi regional, serving the UK; and low-cost unit bmibaby.

Bmi controls 9 percent of the coveted take-off and landing slots at London Heathrow, Europe's busiest airport, which is operating at full capacity after plans to build a third runway were scrapped.

While Lufthansa is seeking to sell bmi as a whole, sources close to the deal told Reuters on Monday that the most likely outcome would involve Lufthansa selling bmi's Heathrow slots to IAG for around 300 million pounds.

IAG would then likely pass on some slots to Virgin to relieve competition concerns.

We are fully engaged in discussions with Lufthansa over the sale of BMI and are following the transaction process as agreed between us, a Virgin Atlantic spokesman said.

British Airways' hold over Heathrow is already too dominant and we are very concerned -- as the competition authorities should also be -- that BA's purchase of BMI would be disastrous for consumer choice and competition.

With the Heathrow slots sold, UK budget airlines could look to buy low-cost carrier bmibaby, while Lufthansa is in talks with a UK investor group over the sale of the regional business.

Bmi has been a millstone around Lufthansa's neck and by putting it up for sale the company has admitted efforts to turn around the unit have stalled. Bmi reported a loss of 154 million euros (132.5 million pounds) for the first nine months of 2011.

IAG and Lufthansa both declined to comment when contacted by Reuters.

(Additional reporting by Sophie Sassard in London and Victoria Bryan in Frankfurt; Writing by Adveith Nair; Editing by David Holmes and Helen Massy-Beresford)