Germany's Lufthansa revealed Friday that it plans to sell its British Midland Ltd subsidiary to the owner of rival British Airways, having failed to turn the business around after nearly three years of ownership.
Lufthansa and BA's owner International Consolidated Airlines Group PLC, or IAG, said they had reached an agreement in principle. No financial details were disclosed but the deal does require regulatory approval.
British Midland, or BMI, has its main hub at London's Heathrow airport, Europe's busiest _ as does British Airways. It operates flights to Europe, the Middle East and Africa.
IAG is the holding company set up earlier this year that owns BA and Spain's Iberia.
Lufthansa said it aims to complete the sale in the first quarter of next year and that plans call for a final purchase agreement to be signed "in the coming weeks."
Lufthansa and British Midland belong to the Star Alliance, while BA is part of the rival oneworld alliance.
Lufthansa's involvement with BMI dates back to 1999. It took majority control nearly three years ago.
Lufthansa's shares was little affected by the news, trading 0.3 percent lower at euro10.36 ($14.27) while IAG shares were down 3.3 percent at 163 pence in early trading on the London Stock Exchange.
BMI has had a difficult year in 2011. Lufthansa said last month that, because of its strong presence in the Middle East and North Africa, the British airline's business suffered particularly badly from political turmoil in the region.
Lufthansa said its performance was also hit by "the weak economy in its British home market," and BMI reported an operating loss of euro154 million ($212 million) for the year's first nine months.
The Lufthansa group also includes Swiss International Airlines, Austrian Airlines and budget offshoot Germanwings.
Separately, IAG on Friday reported an 8 percent drop in third quarter profit as higher fuel prices cut into earnings. For the three months ending Sept. 30, IAG said net profit was euro283 million ($391 million), down from euro290 million earned by the two airlines a year earlier.
The third quarter report include results of 21 days before the airlines merged.
Though passenger revenue rose 3 percent to euro3.8 billion, IAG saw its fuel and oil costs spike 25 percent to euro1.4 billion.
Robert Barr in London contributed to this report.