OLD Media Moves

Delta looking to take a stake in Virgin

December 3, 2012

Posted by Liz Hester

Just when you thought big deals weren’t getting done right now, the news breaks that Delta Air Lines is in talks to buy another airline.

Here’s the New York Times story:

Delta Air Lines is in talks to buy Singapore Airlines’ 49 percent stake in Virgin Atlantic Airways, in an effort to bolster its international operations, particularly flights between New York and London, a person briefed on the matter said on Sunday.

Talks are continuing but a deal will not be announced soon, this person said. Singapore Airlines confirmed that it was in discussions about a potential sale of its Virgin stake, but provided no further details.

A transaction would be the latest in a round of mergers that has reshaped the airline industry, as companies in the United States and Europe have looked to consolidation to restore profitability.

With oil prices remaining stubbornly high and the economic outlook uncertain, many airlines have continued to struggle. That may precipitate even more takeovers, analysts say.

A deal would also be Delta’s most significant strategic move since its 2010 merger with Northwest Airlines, which made it the biggest American carrier until the union of United Airlines and Continental Airlines last year.

It would provide more access to London’s Heathrow Airport, one of the world’s busiest, and expand Delta’s North Atlantic business.

It would also bolster its partnership with Air France KLM, Europe’s biggest airline. Both companies are part of the Sky Team global alliance, and also run a joint business in the North Atlantic market, sharing flights, revenues and costs.

This from Bloomberg:

Singapore Airlines Ltd. (SIA) announced it’s in talks about selling its 49 percent stake in Virgin Atlantic Ltd. after people familiar with the matter said that Delta Air Lines Inc. (DAL) is discussing buying shares.

The negotiations with “interested parties” may not result in a transaction, Singapore Air said in a statement today. Delta is discussing buying part or all of the stake, said the people who asked not to be identified as the matter is private. Delta’s partner Air-France KLM (AF) might also take a stake, they said. Billionaire Richard Branson controls 51 percent of Virgin.

Singapore Air may exit the U.K. carrier after 13 years as Virgin struggles with rising fuel prices and increased competition from British Airways at London’s Heathrow Airport. For Atlanta-based Delta, the second-biggest U.S. airline, a deal would increase access to Europe’s busiest airport and boost its ability to capture lucrative trans-Atlantic business traffic.

Virgin has been seeking partners and in 2010 hired Deutsche Bank AG (DBK) to assess options. The carrier, which isn’t a member of one of the three global airline alliances, posted a pretax loss of 80.2 million pounds for the year ended February.

The airline is adding short-haul routes to Heathrow from U.K. cities including Manchester to feed services to Asia and the U.S. It’s also seeking a replacement for Chief Executive Officer Steve Ridgway, 61, who retires early next year after 11 years in the post. During his tenure the airline emphasized perks such as spa treatments and high-design lounges to win business travelers.

And here’s the Wall Street Journal reporting on the topic:

Delta Air Lines Inc. has approached Singapore Airlines Ltd. to discuss buying its 49% stake in British carrier Virgin Atlantic Airways Ltd., three people familiar with the situation said Sunday.

The Asian carrier has considered selling its stake in Virgin over the past five years and has held talks in the past with several airlines, including Delta.

Delta, the world’s second-largest airline after United Continental Holdings Inc., is interested in Virgin for its access to London’s Heathrow Airport, the world’s biggest international hub by traffic, a person familiar with the talks said.

Virgin is the No. 3 carrier at Heathrow, with 304 takeoffs and landings a week, after the British Airways unit of International Consolidated Airlines Group SA, which has 4,902.

Singapore Airlines confirmed it was holding talks to sell its Virgin Atlantic stake, but didn’t identify Delta as the potential buyer. The “discussions may or may not result in a transaction,” the carrier said in a statement in Singapore Monday.

It will be interesting to see how many deals happen between now and the new year, especially given the tax situation corporations are facing in the U.S. While it doesn’t necessarily apply for Singapore Airlines or Virgin, it makes sense that Delta would want to put some cash to work as soon as possible.

So maybe Delta’s cash can help the troubled Virgin survive to fly another day. Guess we’ll have to wait and see if the deal gets done.

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