Bmi comprises three underperforming businesses: a traditional airline serving Europe, the Middle East and Africa; bmi regional, serving the UK; and low-cost unit bmibaby.

IAG (ICAG.L), which completed the acquisition of Lufthansa's (LHAG.DE) bmi in April, said at the time that the price of the deal would be reduced after the German carrier failed to sell bmibaby and bmi regional.

Bmi said on Thursday it had made progress with finding a buyer for bmi regional, but this had not been possible for bmibaby, despite repeated attempts by both Lufthansa and IAG.

"Bmibaby has therefore started consultation to look at future options including, subject to that consultation, a proposal to close in September this year," it said.

Bmi said the company would make reductions to bmibaby's flying schedule from June.

"It is proposed that all bmibaby flights departing from Monday September 10, 2012 onwards will no longer operate," bmi added.

(Reporting by Adveith Nair; Editing by Jon Loades-Carter)

• A Permanent Economic Emergency