BMI reportedly stated a second bidder has signed a term sheet to acquire bmibaby, which is being sold as part of International Airline Group’s (IAG) purchase of BMI from Lufthansa. As reported by CITY A.M., an unnamed European Union-based airline group has tabled an offer to acquire 100% of the business. The term sheet is non-exclusive, and allows an anonymous UK-based company that made an approach Jan-2012 to continue talks. BMI “plans to sign a definitive sale purchase agreement with one of the parties in the next few weeks”, it said. The latest proposal matches the first in comprising 100% of bmibaby, including its aircraft, with the bidder also planning to maintain the carrier's staff and network, and the brand to be retained for a period and its head office to remain in the East Midlands.
BMI signs term sheet with second bidder for the acquisition of bmibaby
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IAG's Capital Markets Day on 4-Nov-2016 was the first since its formation in 2011 when it lowered any of its medium term financial targets. It cut its 2016-2020 average EBITDAR goal, in spite of adding in Aer Lingus for the first time. This followed two cuts to 2016 operating profit guidance during the course of this year, as a result of "a tough operating environment". It has been hit by adverse currency movements, mainly resulting from the UK's Brexit vote, in addition to ATC strikes and terrorist events.
To its credit, IAG has responded to the more challenging trading conditions by lowering its planned capacity growth and capital expenditure during its 2016-2020 strategic plan. These steps are necessary if it is to have a chance of meeting its ambitious goal to sustain a 15% return on invested capital. This target is unchanged, despite the lower profit outlook.
In 3Q2016, IAG's rolling four quarter return on capital fell, after rising more or less continuously since it began to target this measure in 2013. It has consistently been more profitable than either of its two main European legacy airline group rivals (Air France-KLM and Lufthansa). Nevertheless, the downward step highlights the challenge in meeting its own demanding target.