British Midland – the nuclear option

Press reports that Lufthansa are making threats to close down British Midland if European competition authorities do not allow IAG to take it over were dismissed as bravado by most. This is unwise.

Of course, Lufthansa would prefer to sell the company as quickly as possible and the threat is a pretty obvious tactic. The British government would not be too happy about all the unnecessary redundancies and a closure would be messy.

British Midland cost Lufthansa €285 million last year – and losses could be even greater if they have to keep it going throughout this year in a state of limbo.

Lufthansa has new and much more aggressive management than before. They have started talking tough to their staff in Germany and to other overseas subsidiaries. They have told Austrian Airlines staff they have to agree cost-cutting measures or much of the airline will be rolled into the lower-cost Tyrolean brand. The overseas acquisition spree of the previous management has hurt Lufthansa badly.

The new management is anxious to make a mark both on the main brand and ensure that its subsidiaries do not act as a drain on the group. They cannot afford to talk tough and back down.

If European regulators make conditions on a deal that force IAG to walk away or insist on delaying approval for several months, there is every reason to believe that Lufthansa will follow up its threat.

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