British Midland International A321. By Rob Finlayson

British Airways (BA) owner International Airlines Group (IAG) reached a binding agreement with Lufthansa Group (LH) to buy British Midland Ltd. (bmi), the companies announced Thursday.

IAG, the parent company of BA and Iberia, will pay €207 million ($271 million) in cash for the loss making UK carrier, although the price is subject to significant reductions if LH decides not to sell bmi subsidiary bmibaby before completion, IAG said.

The deal is subject to regulatory clearance from competition authorities, including the European Commission. 

The companies said they aim to complete the transaction during the first quarter of 2012. 

LH has the option to sell bmibaby and bmi regional before the deal is completed. IAG CEO Willie Walsh said bmi regional and bmibaby “are not part” of the company’s plans. “Buying bmi’s mainline business gives IAG a unique opportunity to grow at Heathrow, one of our key hub airports. Using the slot portfolio more efficiently provides the option to launch new long-haul routes to key trading nations while supporting our broad domestic and short-haul network,” he said

The deal follows an agreement in principle signed in early November (ATW Daily News Nov. 7). LH also held negotiations with Virgin Atlantic Airways (VS) (ATW Daily News, Dec. 13), which on Thursday saiditwould ask anti-trust regulators to block the deal.

“Claiming that this deal is about new markets from Heathrow is a smoke screen. This deal simply cuts consumer choice,” VS president Richard Branson said. “BA is already dominant at Heathrow and their removal of bmi just tightens their stranglehold at the world’s busiest international airport. We will fight this monopoly every step of the way as we think it is bad for the consumer, bad for the industry and bad for Britain,” he said.

The purchase of bmi will increase IAG’s number of slots at Heathrow by up to 56 daily pairs at an airport where it already holds about 43% of slots.

Walsh warned that “there is an urgent need to restructure” bmi, but he said “IAG’s purchase of bmi will protect more British jobs than if the airline had been closed and had its Heathrow slots sold off.” 

LH CEO and chairman Christoph Franz said, “As part of Lufthansa’s strategic development, the sale means that our customers, shareholders and employees will benefit from a sharpened corporate profile and a stronger financial position of the group.”

 LH will remain responsible for bmi staff pension liabilities.