British Airways owner IAG buys BMI from Lufthansa
British Airways owner IAG has agreed a binding deal to buy BMI from Lufthansa for £172.5m, but has warned the deal could lead to job losses.
IAG, which also owns Spanish airline Iberia, will gain 56 more slots at Heathrow airport in the deal.
The airlines said they hoped the takeover would be completed in the first three months of next year.
The deal remains subject to clearance by competition bodies, and rival Virgin has said it will oppose the tie-up.
Lufthansa had signed a non-exclusive agreement with IAG in November, but had also been in talks with Virgin.
In a statement, Sir Richard Branson, chairman of Virgin Group, 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."
BMI employs more than 3,600 staff, but reported a £153m loss in the year to 2010.
IAG 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.
Mr Walsh said the restructuring would be carried out over a three-year period.
BMI, which is based in Castle Donington in Leicestershire, operates flights to Europe, the Middle East and Africa.
It has 8.5% of the landing slots at Heathrow, the UK's busiest airport, which are seen as the main attraction of a purchase.
BMI also operates the BMI Baby and BMI Regional brands, which have no landing slots in London airports.
Lufthansa has the option to sell both BMI Baby and BMI Regional before the deal with IAG is completed.
If Lufthansa does not sell BMI Baby before the deal is completed, IAG said the price it would pay would be subject to a "significant" reduction.
Several European airline takeovers have been referred to the European Commission competition authority in the past.
The Commission has prevented takeovers between airlines that operate within the same country in the past, such as in the cases of Ryanair and Aer Lingus in the Irish Republic, and Olympian and Aegean in Greece.
However, the Commission analyses competition issues on a route-by-route basis, rather than on the basis of domination of a particular national market.
If a merger between two airlines restricts passenger choice along a route, then the Commission may ask the airline to give up some of its landing slots to enable another company to launch a competing service.