Virgin Atlantic A340-600. By Rob Finlayson

Virgin Atlantic Airways (VS) and Lufthansa Group (LH) signed a terms and conditions contract on the sale of LH’s loss-making UK subsidiary British Midland (bmi).

The agreement follows a similar accord inked between LH and British Airways’ (BA) parent International Airlines Group (IAG) last month (ATW Daily News, Nov. 7).

VS’s long-standing interest in bmi is based on its conviction that BA’s position at London Heathrow (LHR) is too strong. The purchase of bmi could increase BA’s share of slots at LHR to 53%, although regulators most likely will require some slot divestments.

“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 VS spokesman told UK media. “We believe that our offer will lead to the best outcome for the millions of consumers that fly in and out of Heathrow every year.”

The agreement with IAG did not contain an exclusivity clause but granted the holding company access to conduct due diligence on bmi, an LH spokesperson told ATW. “We did the same with Virgin,” he explained. “Our aim is to find the [best] solution for Lufthansa and for bmi.”

LH is expected to make a final decision on the sale in the first quarter of 2012.

Bmi reported an operating loss of €154 million ($205 million) in the first nine months of 2011, widened from a €90 million deficit in the year-ago period.