German airline Lufthansa is set to enter exclusive talks to sell loss-making carrier bmi by the end of the month, with arch rival IAG , the owner of British Airways, seen as the front-runner, sources said on Tuesday.
"The price won't be substantial, it's mainly about cleaning Lufthansa's balance sheet and getting rid of the debt," one source close to the sales process told Reuters.
Bmi has been a millstone around Lufthansa's neck and by putting it up for sale, the company has admitted efforts have stalled to turn around the unit, which reported losses of 154 million euros ($214.8 million) for the first nine months of 2011.
Lufthansa finance chief Stephan Gemkow said at the group's third-quarter results last week talks were going on with several interested parties and that a binding deal could be reached this year.
The source added there were a handful of bidders, including IAG and Virgin Atlantic .
While Lufthansa is seeking to sell bmi as a whole, another source close to the deal said the most likely outcome would be Lufthansa selling bmi's coveted slots at Heathrow, Europe's largest airport, to IAG.
IAG, made up of BA and Iberia, would then pass on some of those slots to Virgin to relieve competition concerns.
"Lufthansa will likely sell bmi's slots for about 300 million pounds max and its stake in (air traffic manager) NATS and fetch about 400 million pounds in total, so just enough to recover from the losses accumulated since the bmi acquisition," the person said.
With the Heathrow slots sold, smaller players such as Flybe or Eastern could then look to pick up bmi regional.
While some have queried whether Lufthansa would sell bmi to arch rival British Airways, thus strengthening the latter's position at London's Heathrow, one of the sources close to the deal said Lufthansa's desire to be rid of bmi would come first.
"Lufthansa is losing patience and could finally surrender to selling to IAG. They really tried hard to avoid giving them such a strong presence at Heathrow."
One airline industry specialist, who did not want to be named, said Lufthansa would also be keen to avoid bmi falling into the clutches of Gulf airline Etihad, which sources say is teaming up with Virgin for a bid.
"Lufthansa is doing everything in its power to keep the fast growing Gulf airlines at bay - why should they allow a main competitor to gain a foothold on Europe's busiest airport in Heathrow," he said.