Amid a tight bidding race for the 9th largest U.S. airline per passenger traffic, Alaska Air is reportedly outbidding JetBlue Airways and nearing a deal to acquire Virgin America for over $2 billion.
According to people privy to the matter, Virgin America – said to have contemplated a buyout when interest from other air carriers emerged – is in talks with the two companies and may seal a deal by next week. Its market capitalization blew up to $1.3 billion, while its stock peaked at 15 percent since news of the takeover surfaced last week.
The acquisition of the Virgin America, which is backed by billionaire Richard Branson, would signal the first commercial airline merger in the U.S. since US Airways combined with American Airlines in 2013 to form the largest carrier in the world.
"It's inevitable that we would see some form of combination (among smaller airlines) as they strive to find a way to compete with the larger carriers," says travel industry analyst Henry Harteveldt in a Reuters report.
The Seattle-based Alaska Air is set to shell out $56 to $58 per share to acquire the carrier, according to insiders, with a deal possibly announced as early as Monday. The two parties and JetBlue, however, did not respond when sought for comment.
The California-based Virgin America, part of Branson’s Virgin Group, went public in the U.S. stock market back in 2014 and began flying in 2007. Branson’s fund, VX Holdings, and Cyrus Capital Partners own 54 percent of it.
The low-cost airline became popular for mood light features, media-filled inflight entertainment, and comfortable leather seating – all while offering relatively low fares.
Alaska Air is poised to eliminate a major competitor in the West Coast as well as expand its route to Mexico once it acquires Virgin America. It accounts for 5 percent of domestic flight capacity in the country while Virgin America takes about 1.5 percent, according to analyst Michael Linenberg of Deutsche Bank.
Although the combination of the two carriers wouldn’t shake the current size rankings in the industry, the new entity would surpass JetBlue in the fifth place by passenger traffic.
Negotiations could still fall apart and JetBlue, which flies the same aircraft as Virgin, could still file a last-minute bid.
At any rate, regulatory scrutiny of the deal is expected to be heavy given the justice department’s challenges to the 2013 American Airlines-US Airways merger and a proposed swap of takeoff as well as landing rights between Delta and United Airlines at Newark Liberty International Airport in New Jersey.
Previously, regulators required Virgin Group to give up a board seat given Branson’s U.K. citizenship, which would offer a foreigner too much hand in an American airline. This led the group to assign its stake to a trustee and name David Cush from American Airlines as new CEO before Virgin America first took flight.
Virgin America currently flies to 24 U.S. cities and Mexico.
Photo: David Bailey | Flickr
