IAG: Binding Agreement for bmi purchase

Transaction highlights:

• Acquisition of bmi for £172.5million in cash
• IAG's Heathrow slot portfolio to increase by up to 56 additional daily slot pairs
• Lufthansa to take on bmi's defined benefit pension scheme
• Lufthansa has the option to sell bmi regional and bmibaby before completion
• Significant price reduction if Lufthansa does not opt to sell bmibaby before completion
• Deal subject to competition clearance
• Earnings per share (EPS) accretive by 2014 at the latest
• 2015 operating profit target of €1.5 billion to increase by more than €100 million with consequent increase in EPS
• Underpins goal of 12 per cent return on capital employed by 2015
• Restructuring costs spread over three years and significantly lower in total than bmi's current annual losses

Willie Walsh, IAG chief executive, said: "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 longhaul routes to key trading nations while supporting our broad domestic and shorthaul network.

"This deal is good news for the UK as we will maintain a comprehensive domestic schedule including Belfast. Our plans to expand our longhaul network would guarantee growth by making Britain better able to compete on a global scale. It will also help maximise Heathrow's position as a world class hub airport.

"Customers will benefit from access to new destinations, more convenient schedules, enhanced frequent flyer benefits and greater investment than had been possible for loss-making bmi.

"Given the scale of bmi's losses, there is an urgent need to restructure the business. Unfortunately, this will mean some job losses but we will secure a significant number of high quality jobs here in the UK and create similar new jobs in the future. IAG's purchase of bmi will protect more British jobs than if the airline had been closed and had its Heathrow slots sold off. There will be restructuring costs spread over three years but these will be significantly lower in total than bmi's current annual losses.

"bmi regional and bmibaby are not part of our plans and Lufthansa has the option to sell them before completion".

Financing

IAG intends to finance the purchase from its own funds. £60 million of the purchase price will be paid in four instalments to Lufthansa pre-completion. This amount will be secured by Heathrow slots.

Pensions

Lufthansa has agreed to take on bmi's defined benefit pension scheme.

Timetable and conditions

It is hoped that the transaction will be completed during Q1 2012 subject to regulatory clearance from the European Commission and other bodies. There is a termination fee of £10 million which is only payable by IAG if phase 1 EU regulatory approval is not achieved by March 31, 2012 and either party elects to terminate the sales purchase agreement.