Lufthansa, the German flag carrier, has withdrawn bmi from sale and will concentrate on trying to turn around the loss-making airline itself.

After it became clear that an acceptable price could not be achieved, the company confirmed that it was no longer in talks with buyers.

Wolfgang Prock-Schauer, the former head of Jet Airways in India, will become chief executive of bmi today. He has been set the task of restructuring the airline.

If Lufthansa is able to stem the losses and the aviation market recovers, the company will consider putting bmi back on the market.

The Germans took control of bmi, formerly British Midland, this year when Sir Michael Bishop, the former chairman, sold his 50 per cent stake, plus one share, for about £220 million. Lufthansa also bought a 20 per cent stake from SAS, the Scandinavian airline, to give it full control of bmi.

After acquiring Sir Michael's stake, Lufthansa began a review of the airline and has held discussions with both British Airways and Virgin Atlantic about a possible sale.

Willie Walsh, chief executive of BA, indicated only last week that he would still be interested in buying bmi, despite regulatory concerns about dominance of the two carriers if they came together.

Lufthansa would need to sell the airline for about £500 million to recover its investment and cover bmi's losses this year. It is understood that potential buyers have been unwilling to offer anywhere near this amount.

Mr Prock-Schauer, who is expected to launch a restructuring of bmi's operations, has been appointed to replace Nigel Turner. He becomes deputy chairman.

Analysts believe that both bmibaby, a low-cost operation, and bmi Regional could be closed or sold, possibly to Flybe, which has expressed interest in buying parts of the business.

Lufthansa might also seek to downsize bmi, allowing it to concentrate on profitable routes, such as its operations between Heathrow and Edinburgh and Glasgow. This could mean that some of its lucrative Heathrow slots would be put up for sale.

Bmi owns about 11 per cent of landing slots at Heathrow, the world's busiest international airport, and these have long been considered its greatest asset. The airline is the second-largest operator out of Heathrow after BA.

Continental Airlines recently paid $209 million for only four pairs of slots.

A source close to Lufthansa said: "People have expected us to sell bmi because Virgin and BA have said they want to buy it. It would be stupid not to listen if someone wants to buy, but at this time we are not talking to anyone. Lufthansa will focus on turning it around and perhaps when that is done bmi can be sold, or perhaps it will be so good that it will be kept."

Bmi, which employs a staff of 4,300, lost £100 million last year on a turnover of more than £1 billion. Losses are predicted to be about double that this year.

Doug McVitie, managing director of Arran Aerospace, an aviation consultancy, said: "Lufthansa is probably only really realising now what bad shape bmi is in and the Germans probably see integration as more trouble than it is worth. Lufthansa is a strategic airline and will act from the head, not the heart, so nothing can be ruled out in terms of shutting down operations or job losses. Lufthansa's main challenge is on the transatlantic routes countering BA/AA and Air France/Delta, so bmi looks pretty irrelevant to their operations right now."