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Mikati family's M1 Group makes bid for British airline BMED
Source: BI-ME , Author: BI-ME staff
Posted: Thu January 11, 2007 12:00 am

LEBANON. British Mediterranean Airways (BMED), the UK airline chaired by Lord Hesketh that flies under British Airways colours to some of the riskier destinations in the world, is poised to change hands in a US$60 million rescue deal. The carrier, which has been flying on empty after two years of soaring losses, is to be bailed out by Lebanon's Mikati family, who made their fortune in telecoms.

The Mikatis, who already have fledgling airline interests, have agreed to advance BMED an immediate £3 million (US$5.7 million) bridging loan prior to the injection of around £27m more cash later this month.

The BMED board this week signed heads of agreement for a deal that will also provide funds for expansion. BMED Chief Executive David Richardson is expected to stay with the business.

Rocketing oil prices and Israeli air strikes in Lebanon - which forced the carrier to suspend its Heathrow-Beirut services - have hit BMED hard. The airline, which became a BA franchise partner in 1997, is on course to lose around US$40 million in the year ending March 2007, on top of the US$20 million it lost the previous year.

Set up in 1994, it employs 750 staff, flying to 16 destinations from London Heathrow, including Damascus, Tehran, Tashkent and Khartoum.

The refinancing will effectively wipe out the existing shareholders, led by Wafic Said, the Syrian financier, racehorse owner and founder of the Said Business School at Oxford. His family owns almost 50% of BMED.

Lord Hesketh, who was chief whip in the House of Lords in the UK under the government of Prime Minister John Major, is the second-biggest shareholder with 19%. BMED's financial adviser, NM Rothschild, was forced to seek new investors after Wafic Said declined to put in any more money. He has already lent the airline US$16 million, much of which will be repaid under the Mikati deal.

One source said: "For Wafic Said, BMED had become a headache." His interest waned after a spat last year with minority shareholders.

The transaction, which is subject to BMED shareholder approval, is being negotiated by Maher Mikati, Executive Director of M1 Travel.

M1 Travel is a subsidiary of M1 Group, which is owned by former Prime Minister Najib Mikati and his brother Taha. M1 Travel owns the Swiss budget airline FlyBaboo, which spent US$50 million in November 2006 to add new planes to its Geneva-based fleet.

The Mikatis' main business, however, is telecommunications. Their company Investcom operated mobile networks in ten countries throughout the Middle East and Africa, such as Syria, Cyprus, Sudan, Afghanistan and Ghana. In May 2006, the Mikatis sold Investcom to South-African mobile operator MTN for about US$5.5 billion in cash and shares. Investcom estimated its 2005 revenues at US$750 million, with 90% of revenues flowing in from mobile services.

With the sale of Investcom, the Mikatis' M1 now controls about 10% of MTN, although that interest could soon increase. MTN announced in November 2006 that it approved plans for M1 and a group including the company's top managers to acquire more MTN shares.

The company did not give details of this deal, but said it would enhance the percentage of black control of MTN. South African firms have to meet quotas on black ownership and employment. MTN CEO Phuthuma Nhleko and CFO Rob Nisbet - both black - were part of the group which teamed up with M1 to buy shares through a new company.

BMED Chief Executive David Richardson said that the board had held discussions with a number of interested parties about possible options to restore the company to profitability.

"While the proposed transaction is severely dilutive of present shareholders' interests, the board is confident that the proposal, albeit yet to be finalised, is in the airline's best long-term interests," Richardson said. BMED said it hoped to put firm proposals to shareholders later this month. The deal is expected to be structured so as to ensure BMED remains a UK registered company.

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