Deutsche Lufthansa AG, Europe's second-biggest airline has finally reached a settlement with Sir Michael Bishop, the co-founder of BMI (British Midland Airways Ltd.) over a put option he is holding, to acquire the airline in stages bringing an end to the row that has been persisting for several months, Lufthansa said in a press release yesterday.

Lufthansa already owns 30 per cent minus one share stake in BMI. As per the deal, the German carrier will pay Bishop and his holding company £223 million (Rs1,771 crores) for additional 50 per cent plus one share stake. Bishop will be paid a compensation of £175 million for canceling the put option and the remaining £48 million will be paid for buying the shares.

The shares will acquired through Lufthansa-related holding company, LHBD Holding Ltd, from Bishop's holding company BBW Partnership Ltd.

Initially the German carrier will own 35 per cent stake in the UK-based LHBD and plans to acquire 100 per cent stake after obtaining the necessary traffic rights for BMI.

It is believed that Lufthansa is in discussions with Scandinavian Airlines (SAS), holder of the remaining 20 per cent stake in BMI for a possible acquisition.

The deal comes at a time when the airline industry is facing a severe slump due to the fall in passenger traffic and cargo movement as a result of the global slowdown.

BMI is the second-largest airline operator from London's Heathrow hub. It largely operates to destinations within UK and other European countries apart from its services to the Middle East Central Asia and Africa and holds one of the best punctuality records in the UK.

Through this deal, Lufthansa aims to benefit from BMI's control of more than eleven per cent of all the take-off and landing slots at Heathrow, the largest airport in Europe. However, BMI has in recent years experienced increasing financial challenges which have been strongly exacerbated by the sharp rise in fuel prices in the past year and the ongoing global economic crisis, Lufthansa said.

Other players who expressed interest in BMI include Virgin Atlantic Airways Ltd., 51 per cent owned by Virgin Group and 49 per cent by Singapore Airlines.

See: Lufthansa buys 45-per cent stake in Brussels Airlines