JetBlue Airways and Alaska Air Group are both bidding for new ownership of Virgin America.
According to people privy to the information, Virgin America is in talks with the two bidders and a deal may be reached by next week. There are claims that new players may join in the talks or Virgin America may back out of the negotiations.
Bloomberg reported that Virgin America mulled over a buyout after talks of interest from other carriers surfaced. The carrier's market capitalization blew up to $1.3 billion.
Its stocks peaked at 15 percent and closed at as much as 10 percent at $37.70 since news of the takeover was reported last week. Alaska Air gained 1.1 percent to increase its stock price to $81.49, while JetBlue increased by 2.7 percent to $20.79.
According to Cowen & Co. analyst Helane Becker, Virgin America's sale to JetBlue would be the most sensible decision if taken from the aircraft, network and product offering perspective. The acquisition of Virgin America would boost JetBlue's presence in San Francisco and Los Angeles while eliminating competition for business travelers on cross-country destinations.
Virgin America and JetBlue fly the same type of aircraft, which means there is no need for JetBlue to train its pilots and maintenance crew with regard to operations.
Likewise, JetBlue would benefit from the corporate accounts and technology of the Virgin group. Last year, Virgin America rolled out its inflight system that uses Android-based software that would allow its passengers to check out interactive maps or play games, such as Pac-Man.
Since Virgin America has a strong presence in the western area of the U.S., it would greatly complement JetBlue's New York and East Coast and Carribean presence.
On the other hand, should Alaska Air take over Virgin America, it would take out a major West Coast rival while expanding its route in Mexico.
Since about 54 percent of Virgin America is owned by Richard Branson's fund, Cyrus Capital Partners and VX Holdings, Becker said the major stockholders would likely cash in their investment in the company.
"The large shareholders could be seeking to monetize their investment with a sale to another investor or a partial sale to a foreign airline/company that would have a code-sharing agreement attached to it," Becker shared.
If the sale would push through, the companies would need to pass an antitrust review, said MJ Moltenbray, a partner at Paul Hastings and former director at the United States Department of Justice's antitrust division.
"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," Moltenbray said.
In 2015, Virgin America reported all-time high adjusted earnings of $201.5 million. The company also acquired five Airbus A320 aircrafts and plans to add five more this year to work on its long-term plans. Virgin America, based in Burlingame, California, is expected to grow by 10 percent by 2017 and 2018.
When reached for comments on the speculations, Virgin America did not return calls for comments. Alaska Air spokeswoman Bobbie Egan and JetBlue spokesman Doug McGraw refused to give comments stating that the company does not give statements on speculations and rumors.
Photo: Jun Seita | Flickr
