Richard Branson's Virgin Atlantic has gatecrashed rival British Airways' deal to buy Lufthansa AG's UK unit bmi, agreeing a counterbid it hopes will be more appealing to regulators.

British Airways owner IAG said in early November it had reached an agreement in principle to buy bmi, lured by its coveted slots at London's Heathrow airport and seemingly leaving Virgin out in the cold.

Yet a spokeswoman for Lufthansa said Monday the airline had also reached an agreement in principle for the sale of bmi to Virgin, which said last month it was still in talks with the German carrier.

She added that Germany's biggest carrier hoped to sign a final deal in the next few weeks, with completion seen in the first quarter of 2012.

We will look at the quality of the offers and which one gives the most attractive prospects for the future of bmi, she said, declining to provide further details of the bids or to say which bid Lufthansa preferred.

A sale to Virgin could be a smart move for Lufthansa, analysts say, as it would likely involve less regulatory scrutiny and also prevent bmi falling into the hands of British Airways, its strongest competitor.

Lufthansa shares were down 3.6 percent at 8.78 euros by 1:24 p.m. BT, while IAG's fell 3.1 percent, underperforming the leading index of European shares, which was down 0.9 percent.


A source close to the talks said Virgin had outlined the details of a bid, which was satisfactory to Lufthansa, and that the German carrier had opened bmi's books to Virgin.

IAG's offer will be larger than Virgin's in financial terms because they have the deeper pockets, but Virgin hopes its offer will be more compelling because it is more straightforward with the likelihood of less regulatory issues cropping up than would be the case with IAG's bid, the source said.

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

IAG, which currently holds 43.1 percent of the slots at Heathrow, would hold around 52 percent of the hub's slots if its bid for bmi succeeds.

Virgin has written to the Office of Fair Trading and the European Commission requesting the sale of bmi's assets are examined to ensure competition is not eroded.

However, IAG says its holding at Heathrow is small compared with rivals at other European hubs -- Lufthansa holds two-thirds of the slots at Frankfurt, while Air France-KLM has 59 percent at Charles de Gaulle in Paris and 57 percent at Amsterdam's Schiphol.

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, a Virgin spokeswoman said.

The Times newspaper in London earlier cited banking sources as saying the Virgin offer was thought to be in the region of 50 million pounds, while IAG's was about double that figure, excluding pension and restructuring costs.

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

The Times said, without citing a source, that Virgin's bankers were arguing that Lufthansa would be better off doing a quick but lower-priced deal with the airline, as its offer would likely meet with less regulatory scrutiny.

Analyst Stefan Kick at brokerage Silvia Quandt said the Virgin bid was a good fall-back for Lufthansa, should competition authorities reject the IAG deal.

IAG said it was still negotiating. Lufthansa has kept us appraised of other parties involved in the process, an IAG spokeswoman said.

(Additional reporting by Stephen Mangan and Adveith Nair in London; Editing by Helen Massy-Beresford and David Holmes)