The two airlines have confirmed they have held discussions about closer co-operation.

But BMI said there were "no ongoing discussions in relation to a merger".

Virgin Atlantic was also playing down speculation about a possible tie-up.

BA rival

"There have been no definitive conclusions reached on the potential opportunities, nor any other form of more permanent tie-up between the two companies," a Virgin spokesman said.

The talks are reported to have centred around possible code-sharing - selling seats on other routes.

Other subjects on the table included the synchronisation of networks, sharing facilities and more efficient use of BMI landing slots at Heathrow airport.

Any future merger between the two companies would produce a powerful rival to British Airways.

BMI has 17% of the landing slots at London's Heathrow Airport, but limited access to the lucrative transatlantic route, whereas Virgin has the transatlantic rights but only 3% of Heathrow's slots.

'No ongoing discussions'

BMI is controlled by its founder and chairman Sir Michael Bishop. Lufthansa and the Scandinavian airline SAS hold 49% of the business.

Virgin Atlantic is jointly owned by Sir Richard Branson's Virgin Group and Singapore Airlines which holds 49% of the company.

Virgin is thought to be eager to take over BMI's European routes into Heathrow because these could feed into its long-haul flights to the US, the Caribbean, the Far East, India and Africa.

"BMI and Virgin have for some time been exploring possible areas for greater co-operation in expanding their respective businesses, including code sharing expansion, potential sharing of facilities and joint lobbying on matters of common interest," Virgin said.

A BMI spokesman said the airlines were not currently talking about a tie-up.

"Although the two companies talk regularly about a range of issues and have explored and continue to explore various forms of co-operation there are no ongoing discussions in relation to a merger."