British Midland is valued at £800m amid takeover buzz

A price tag of £800 million was hung on the British Midland airline group today amid rising speculation that Heathrow's second-largest airline will fall prey to a takeover or merger.

In financial reports showing a near-50% slump in profits at the group, which flies as bmi and the cut-price brand bmibaby, British Midland said it had for the first time put a valuation on its take-off and landing slots at Heathrow, where it is responsible for one in seven flights.

It said its Heathrow slots have been valued at £770 million on its balance sheet which now, with other interests, puts a net asset value on the group of £800 million. The decision to release its internal valuation was seen as a clear signal its founder, chairman and majority shareholder Sir Michael Bishop, 65, may finally be ready to talk to the host of airlines that are after its prime Heathrow portfolio of slots.

Bishop's 30% shareholder, the German giant Lufthansa, has first rights on any deal after taking out pre-emption options at the time of its investment. While Lufthansa may baulk at paying £560 million to take control of the rest of an airline that made less than £10 million last year, the landing slots are a big prize in the era of Open Skies when, for the first time, Lufthansa is allowed to run services from Heathrow to the US.

British Airways chief executive Willie Walsh has made no secret of his desire to buy British Midland, though such a deal could spark a competition probe. Sir Richard Branson's Virgin Atlantic has long coveted the airline but Bishop has thus far refused to talk.

British Midland's underlying pretax profits in 2007, a year which saw British Airways make profits of £883 million, slumped 45% to £9.3 million.

Bishop blamed falling profits on the losses and integration costs at BMED, the "mid-haul" airline it bought in 2006 for a cut-price £30 million.