Insider Media Limited

The owner of British Airways (BA) has finally signed a binding deal to buy Derby airline BMI for £172.5m. The sale comes at a price of "some job losses", admitted Willie Walsh, chief executive of BA parent International Airlines Group (IAG).

The deal means that IAG, which also owns Spanish airline Iberia, will gain 56 more prized slots at Heathrow.

The binding contract between IAG and BMI's parent company Lufthansa comes after Richard Branson's Virgin Airlines threw its hat in the ring last week in an attempt to secure a deal.

Lufthansa had been courted by both IAG and rival Virgin, but signed a non-exclusive agreement with the former in November.

BA chief executive Willie Walsh said: "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."

Virgin had previously warned that a deal with IAG would be "uncompetitive" as BA already had a "dominant" position with regards to landing slots at Heathrow.

In a statement this morning, Lufthansa said it still had the option to sell subsidiary businesses BMI regional and BMIbaby before completion of the deal with IAG.

Walsh said IAG is targeting a 2015 operating profit target of €1.5bn with the addition of BMI.

He added: "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.

The two airlines said the deal, which is still subject to clearance by competition authorities, should complete in the first three months of 2012.

For the year ending December 2010, BMI reported a £153m loss before tax on revenues of £777m for the year 2010.