International Airlines Group, which comprises British Airways and Iberia, on Friday posted a 26-percent drop in third-quarter net profits, as it unveiled a deal to buy Lufthansa\'s British Midland division. Profits after taxation sank to 267 million euros ($368 million) in the three months to September, as IAG was hit by high fuel costs. That compared with 362 million euros in the same part of last year, it said in a results statement. Revenues increased by 2.2 percent in the quarter to 4.49 billion euros, but fuel costs soared by 23.7 percent on the back of soaring oil prices. Jet fuel, or kerosene, is refined from crude oil. \"Our revenue is up 2.2 per cent in the quarter driven primarily by volume,\" said IAG chief executive Willie Walsh in the earnings release. \"However, high fuel costs continue to have a significant impact on our business. \"This quarter fuel costs are up 23.7 percent, compared to last year, while non-fuel costs are flat.\" Looking ahead, he added: \"The main challenge for 2012 will be to offset increased fuel costs ... against a background of potentially weaker demand.\" Separately, IAG announced that it had agreed in principle to purchase the loss-making British Midland from Germany\'s Lufthansa. Lufthansa acquired the British airline in 2009, but the recent crises and conflicts in the key regions of North Africa and the Middle East prevented the German carrier from steering the unit back into profit. Walsh described the deal as \"a fantastic story\" and good for the British economy, adding it would welcome long-haul flights to BA and Iberia\'s schedules. \"This is a great story for IAG and also great for the UK economy and for consumers,\" Walsh said Friday. \"We will expand our networks, particularly on long-haul which is so critically important to the UK economy. The deal will allow us to connect further to the emerging world economies.\" Questioned about potential jobs losses, Mr Walsh said: \"It\'s far too early for us to say what the impact will be.\" IAG was created in January earlier this year. The 2010 figures were calculated on a pro forma basis, as if BA and Iberia had already been trading as a combined group.