Lufthansa, Europe's second biggest airline, is planning to sell its loss-making subsidiary BMI, with Richard Branson's Virgin Atlantic poised to take it over.

The German airline is looking to raise cash after being threatened with a credit rating downgrade, and a full sale of BMI, which it took control of only two months ago, is one of the options that is open for discussion.

The airline has been hit by the downturn in the aviation sector, posting a first-half loss of €216m (£187m), and has already cut its daily Frankfurt-Portland service.

Reports suggest it may already be in talks with Virgin over a complete or partial sale. Another option is breaking up BMI and selling its Heathrow take-off slots and regional operations separately.

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