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Virgin America receives takeover offers

Tuesday, March 29, 2016 - 07:25

[NEW YORK] Virgin America Inc has received takeover bids from JetBlue Airways Corp and Alaska Air Group Inc as the US budget airline backed by British billionaire Richard Branson explores a sale, a person familiar with the matter said Monday.

Asian airlines have also expressed interest in buying Virgin America, although they would have to partner with a US bidder under foreign ownership rules governing US airlines.

The source asked not to be identified because the sale process is confidential.

JetBlue, Alaska Air and Burlingame, California-based Virgin America declined to comment.

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In the past year, Virgin America has faced steep declines in unit revenue, or sales relative to flight capacity, as bigger rivals have added seats to gain share and take advantage of lower fuel costs that make it cheaper to operate flights. A tie-up with another airline could give Virgin America more flights that would help it compete.

Analysts said a deal could make sense particularly for New York-based JetBlue, which has room to grow on the US West Coast. Both carriers fly the same type of aircraft, which means JetBlue would not need to train pilots or maintenance crew on how to operate Virgin America's planes.

Buyers would benefit from Virgin America's corporate accounts with major technology companies such as Facebook Inc and Alphabet Inc, Sterne Agee CRT analyst Adam Hackel said.

A buyer would have to assume Virgin America's aircraft leases, likely at above market rates, however, and might have to hike its pilots' lower-than-average wages, JPMorgan analyst Jamie Baker said in a research note last week after news of a potential sale broke.

Mega-mergers among larger US airlines in the past decade have reduced the industry to four top players: American, Delta, United and Southwest, which control more than 80 per cent of the market.

MJ Moltenbrey, a partner at law firm Paul Hastings and a former director at the US Department of Justice's antitrust division, said a deal with JetBlue or Alaska Air would likely pass an antitrust review. "A combination of two of the smaller airlines would result in significant efficiencies by giving them a bigger footprint, and would make the merged airline a more effective competitor to the big three," Mr Moltenbrey said.

News of the offers, first reported by Bloomberg, pushed Virgin America's stock up 10 per cent, while JetBlue rose 3 per cent and Alaska Air gained 1 per cent.

Virgin America went public in November 2014 and has a market capitalisation of US$1.3 billion.

REUTERS

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