BMI takes control of BMED in £30m deal

By Alistair Osborne, Business Editor, Daily Telegraph, London
Last Updated: 8:17am GMT 03/02/2007

BMI, the UK airline controlled by Sir Michael Bishop, has flown to the
rescue of BMED, paying £30m to acquire the struggling carrier that flies
to some of the hairiest destinations on the planet.

The deal will see Bmi take total control of BMED, which is chaired by
Tory peer Lord Hesketh and flies under British Airways colours from
Heathrow airport to 17 destinations in 16 countries, including Beirut,
Damascus, Teheran, Tashkent and Khartoum.

Talks between the two sides began last month, as The Daily Telegraph
revealed, after the breakdown of negotiations between BMED and Lebanon’s
Mikati family.

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For BMED the clock has been ticking because it was fast running out of
cash. It had been brought to the brink by the soaring oil price and the
war in Lebanon, which led to the temporary closure of the runway in
Beirut, one of BMED’s most important destinations.

The carrier is on course to lose £21m this financial year on sales of
£118m, on top of the £10m it lost in 2006. Its financial crisis was
triggered by the decision of Syrian financier Wafic Said, whose family
owns almost 50pc of the shares, not to put any more money into the
company, having already advanced it an £8m loan.

Under the deal, Mr Said, a racehorse owner and founder of the Said
Business School at Oxford, will receive no cash for his equity, which is
worthless, but have his shareholder loan repaid. Lord Hesketh, the
second biggest shareholder with 19pc, will also have a £500,000 loan repaid.

Nigel Turner, Bmi chief executive, said: "BMED couldn’t be a more
complementary fit." He said BMED operated from the same Heathrow base,
where Bmi has 12pc of the take-off and landing slots, flying eight IAE
engined Airbus A320 and A321 planes – the same aircraft that Bmi utilises.

"It gives Bmi a mid-haul strategy on a plate," he said, adding 17 more
destinations to its sole middle-range city, Moscow.

Bmi, which made £10m profits on £869m sales in 2005 – its latest
accounts – also owns the Bmibaby low-fare airline and flies to long-haul
destinations including Chicago and Saudi Arabia.

He said Bmi would retain BMED’s chief executive David Richardson and
welcomed its 750 staff to Bmi, which is eight times bigger than BMED.
"The real issue is that it [BMED] wasn’t big enough to support the route
network. It didn’t have enough scale," Mr Turner said.

All of BMED’s non-executives, who also include Lord Powell, Baroness
Thatcher’s former foreign policy adviser, have resigned.

Lord Hesketh, who set up the airline in 1994 and ran it for years as a
profitable venture, said: "It’s very sad after 13 years not to be able
to see it through but I’m pleased it’s going to a good home.

"Bmi are paying a significant amount of money which proves what we were
trying to do is not without value.

"As far as I’m concerned the effort’s been worth it." Lord Hesketh said
he had the "greatest of respect" for Bmi chairman Sir Michael.

BMED became a BA franchise partner in 1997 and Bmi will continue to
operate it as such until the end of this summer. Asked if it would
revert to Bmi colours after that, Mr Turner said: "That is probably our
intention."

NOTE: BMED (British Mediterranean Airways) flies as British Airways
to Yerevan four times a week.