A British Airways franchise partner is in £30 million rescue talks in a further blow to the beleaguered airline.

BMED - formerly British Mediterranean Airways - has written to shareholders warning them that unless it secures more cash it may not be able to pay off its debts.

A proposed deal with Lebanon's Mikati family has fallen through and BMED management is now in negotiations with another airline, thought to be bmi.

Jonathan Grisdale, BMED commercial director, told The Times: "We are trying to get a deal resolved as quickly as possible, hopefully within the next few weeks."

If a rival airline comes up with the money and takes a controlling interest, BA would lose a valuable revenue stream just as it pushes through a programme to boost profits by reducing costs.

BMED has flown under the BA flag since 1997 and runs services to 16 destinations including Ethiopia, Iran, Lebanon, Syria and Uzbekistan.

In 2004-05, BMED paid BA £14 million in franchise fees and charges for other services and engineering. BA made double that from passengers booking connecting flights on its own services.

BMED reported profits of £5.1 million in the year to March 2005 but is expected to lose £21 million in the current financial year after been hit hard by record fuel prices and last year's conflict in Beirut between Hezbollah militia and Israel.

Despite its relationship with BA, Mr Grisdale said that the airline was unlikely to step in itself to save BMED. "BA is our franchise partner. They are quite happy to leave it at that," he said.

Bmi refused to comment on "rumour and speculation".

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