ALASKA Air Group Inc is nearing a deal to acquire Virgin America Inc, the ninth-largest United States airline by passenger traffic, for more than $US2billion ($F4b), having outbid JetBlue Airways Corp, people familiar with the matter said on Saturday.
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Including debt and aircraft leases, the transaction is worth about $4 billion.
Virgin America is the brainchild of British entrepreneur Richard Branson, but USA law prohibits an American airline from being owned and controlled by foreign citizens, which forced Branson to become a minority owner along with non-voting shares.
The shares of Virgin America Inc (NASDAQ:VA) are trading higher today following the announcement that it will be acquired by Alaska Air Group, Inc.
Virgin, which in 2013 turned profitable, earned over $340.5 million in 2015, which was a company record. The low cost of fuel has made the airlines profitable, and they are adding new planes to their fleets.
Virgin is being forced to restart that growth this year as it takes delivery of new jets ordered years ago that can’t easily be cancelled.
Alaska Air Group Inc. of Seattle agreed last week to purchase Burlingame’s Virgin America Inc. for $2.6 billion, and it seems Virgin’s strong presence at Los Angeles International Airport and the growing L.A. tech scene were key factors in the deal. It will turn Alaska into the fifth largest US carrier.
Virgin America, based in San Francisco, has also been adding more flights and has increased ticket prices. Incidentally, JetBlue lost the bid to Alaska Airlines. If this deal is consummated, American Airlines will end up as the contract’s biggest third party beneficiary. JetBlue was also bidding to acquire Virgin.
With nearly zero risk, American Airlines is looking forward to collecting considerable benefits in this arrangement thus it is very intent on the deal’s completion. Those four control 83 percent of domestic seats, according to an Associated Press analysis of data from Diio, an airline-schedule tracking service. Alaska Air said its unions and pilot leadership were on board with the merger.
The companies said they expected the deal to receive the necessary approvals from Virgin America shareholders and USA regulators by January 1.
The stock is up 41.59% or $16.18 after the news, hitting $55.08 per share.
For Virgin America customers, service will expand in the thriving technology markets in Silicon Valley and Seattle.
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“Over the next few months Alaska will explore with the Virgin Group how the Virgin America brand could continue to serve a role in driving customer acquisition and loyalty to get the best from both brands”, Alaska Air said.
