Alaska Air Group Inc said on Monday that it had agreed to buy Virgin America Inc. for $2.6 billion to expand its flights on the US West Coast.
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Virgin America has received takeover bids from JetBlue and Alaska Air as the USA budget airline backed by British billionaire Richard Branson explores a sale, a person familiar told Reuters last week.
The companies put the transaction’s value at about $US4 billion, including debt and capitalised aircraft operating leases.
With Virgin America, Alaska, which flies many routes from Los Angeles, would add San Francisco as a second California hub.
With the aforementioned offer, Alaska Air is set to pay between $56 and $58 per share to acquire Virgin America. The airline’s profits came from slowing down its rapid growth and from the help of low fuel prices.
For the fourth year in a row, Virgin America is tops in airline quality among the biggest US airlines.
Virgin America accounts for about 1.5 per cent of U.S. domestic flight capacity, while Alaska Air and its Horizon Air subsidiary account for 5 per cent, Deutsche Bank analyst Michael Linenberg wrote in a recent research note.
According to individuals familiar with the deal, as reported in The Wall Street Journal, Alaska Air and Virgin America have only six routes that now overlap, meaning fliers for both airlines should dramatically increase their access to and from their frequent destinations.
Alaska Air Group – which owns Alaska Airlines and Horizon Air Industries – is based in Seattle and travels to more than 90 cities in the U.S., Canada and Mexico.
The combined business will be based in Seattle with Tilden as its CEO.
The announcement caps a contest reportedly between Jet Blue Airways and Alaska Air for Virgin America, as smaller United States carriers seek to beef up now that the four largest control about 80 percent of the market.
If past airline deals are any indication, Alaska and Virgin will continue to operate separately for several years while combining workforces, computer systems and – maybe – fleets. The airlines hope to close by the end of this year.
Brad Tilden the CEO at Alaska said the airlines goal was to be the premier airline for those people up and down the West Coast.
The deal will boost Alaska Air’s revenue 27 percent to more than $7 billion and should produce $225 million of annual savings following integration costs of as much as $350 million, the carrier said in a statement.
The combined group will still trail far behind the leaders.
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He added that he started Virgin America in 2007 “out of frustration”. However, regulators still have to look into the deal and then give their approval, while Virgin America’s shareholders also have to give their blessing to the deal.
