Virgin Atlantic has proposed combining its operations with bmi, the British airline bought by Lufthansa today for €400 million (£318 million), in a deal that could create a European super-carrier.

Lufthansa, the German national airline, now owns 80 per cent of bmi, the former British Midland, and is expected to make a bid for the remaining 20 per cent, which is owned by Scandinavian Airlines (SAS). SAS has put both the stake and itself up for sale.

Virgin Atlantic, the airline owned by Sir Richard Branson, today responded to the purchase of bmi by offering to combine its own operations with bmi.

Virgin's offer was vague but is understood to include either buying bmi from Lufthansa or integrating operations across all three carriers in a partnership that would create Europe’s dominant airline. Lufthansa has expressed no interest in selling bmi and is instead leading a wave of consolidation in the airline sector.

A tie-up with Virgin would allow the German carrier to use the better-known Virgin brand to expand internationally and at Heathrow in particular.

Lufthansa’s acquisition of bmi will make it the second-largest operator out of Heathrow, the world's busiest international airport, behind British Airways.

Its greater presence at Heathrow will allow Lufthansa to challenge BA on the profitable transatlantic routes to the US.

Lufthansa said in a results statement today that Sir Michael Bishop, the chairman of bmi, had exercised an option to sell his 50 per cent plus one share stake in the airline and the deal is expected to complete on January 12.

The option was agreed when Lufthansa bought a 30 per cent stake in bmi in 1999 and the price of Sir Michael's holding was established then.

Both BA and Virgin Atlantic had expressed an interest in buying Sir Michael's stake because bmi controls 12 per cent of Heathrow’s highly prized slots.

Steve Ridgway, the chief executive of Virgin Atlantic, said: “Everyone has speculated that it would make sense for Virgin Atlantic and bmi to combine their long-haul and short-haul networks.

"There is now a major opportunity to do that and create a new, strongly viable competitor to BA. I am sure that Lufthansa realise the future opportunities and this could be a really good example of the right industry consolidation. It would be good for consumers and for UK plc."

The airline industry is undergoing a period of consolidation as carriers struggle with high fuel costs and falling consumer demand.

Lufthansa, BA and Air France-KLM have emerged as the consolidators and are in the process of buying or merging with a number of smaller European airlines.

BA is currently in merger talks with Iberia, the Spanish flag carrier, but the terms of the deal are still to be agreed. The Spanish are pushing for a greater share of the combined company, which could potentially mean BA shareholders lose out.

As a result, the Iberia deal is taking longer than expected to arrange and may collapse completely if the two sides fail to agree.

Lufthansa has made a bid for Austrian Airlines but the sale has been delayed to allow S7, a Russian airline, to make a rival offer.

Lufthansa has made a token bid of €0.01 a share, valuing the carrier at €360,000. It will also take on €400 million of debt but wants the Austrian state to take on the remaining €500 million debt.

Lufthansa has also bought a 45 per cent stake in Brussels Airlines and both it and Air France-KLM are exploring a partnership with Italy’s Alitalia.

In a trading statement released today, Lufthansa reported a 75 per cent drop in net profit in the third quarter. It blamed the fall on high fuel costs and weaker sales because of the global financial crisis. The airline also cut its full-year operating profit target to €1.1 billion from €1.38 billion.

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