Monday, March 28, 2016

JetBlue, Alaska Air Bidding for Virgin America: Takeover offers due by end of week in what could signal next wave of airline consolidation

The Wall Street Journal
By Susan Carey, Robert Wall and Dana Mattioli
March 28, 2016 8:29 p.m. ET

Low-fare startup Virgin America Inc. may soon have a new owner.

Takeover offers from two other U.S. airlines— JetBlue Airways Corp. and Alaska Air Group Inc. —are due by the end of the week, according to a person familiar with the matter, in what could signal the latest wave of consolidation in the industry. A preferred buyer could emerge as early as this week, the person said, though a final deal could take longer to complete. The details of the potential offers couldn’t be determined.

The possible takeover of Virgin, a small, San Francisco-based carrier, suggests consolidation in the industry is moving to the regional carriers and ultradiscounters after mergers between 2008 and 2013 combined eight big carriers into four, which now control more than 80% of the U.S. domestic market. The four, in order of size by U.S. traffic, are American Airlines Group Inc., Delta Air Lines Inc., United Continental Holdings Inc. and Southwest Airlines Co.

Virgin America, based in Burlingame, Calif., near San Francisco International Airport, was launched in 2007 and was a steady money-loser until 2013, when it started turning itself around by slowing its breakneck growth and filling more of its seats with higher fares.

Virgin America, now the ninth-largest U.S. airline by traffic, recently started expanding. It took five new Airbus planes in 2015, has five more coming this year and recently ordered 10 more. The company, which has a market capitalization of $1.7 billion, has launched service to Hawaii, expanded into Denver and Dallas and has added flights out of Los Angeles.

But its chief executive, David Cush, has complained the company can’t get the gates or slots it needs to grow freely. Part of the problem, he has said, is that all the mergers have winnowed opportunities for smaller carriers.

The takeover talks were reported earlier by Bloomberg.

Virgin America went public in November 2014, and its founding shareholders, Richard Branson’s Virgin Group Ltd. and New York-based investment adviser Cyrus Capital Partners LP, still control about 54% of the shares.

Helane Becker, an analyst with Cowen & Co., said those large holders could be seeking to monetize their investment.

She added that JetBlue would make the most sense for Virgin from an aircraft, network and product-offering perspective. JetBlue, the No. 5 U.S. airline by traffic, operates the same types of narrow-body Airbus A320s as Virgin America. The two compete on some major transcontinental routes. JetBlue also has a reputation for offering superior service at relatively low fares.

The person familiar with the matter said JetBlue would be seeking to boost its West Coast presence by buying Virgin America. Alaska’s Alaska Airlines unit was interested in boosting the price passengers paid for their tickets in its existing markets, this person said.

Alaska Air Group, the parent of Alaska Airlines, is the No. 6 U.S. carrier by traffic. The Seattle based-company, which has been around for more than 80 years, hasn’t made major airline acquisitions since the 1980s.

Under U.S. regulations, a foreign carrier would be limited to buying just 25% of Virgin America, although its voting share could go up to 49%. Virgin Group and Cyrus had to redo their initial plans for the equity in the new airline to satisfy U.S. regulators.

Original article can be found here:

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