Alaska Air buys Virgin America

Deal worth $4bn

Alaska Airlines said on Monday it was acquiring Virgin America in a friendly takeover worth around $4 billion to create the fifth-largest US airline.

Aiming to boost its market power in an era of industry consolidation, Alaska parent Alaska Air Group will pay $2.6 billion, or $57 a share, in cash for the nine-year-old US carrier created by British tycoon Richard Branson. That amounted to a 46.5 percent premium on where Virgin America shares were trading on the Nasdaq Exchange at the close on Friday.

With Virgin debt added in, the total value of the takeover, already agreed by the boards of both companies, will run to about $4 billion.

The deal sent Virgin America shares soaring by 41 percent to $54.86 on Monday, while Alaska Air shares lost five percent to $77.89.

The announcement caps a contest reportedly between Jet Blue Airways and Alaska Air for Virgin America, as smaller US carriers seek to beef up now that the four largest control about 80 percent of the market.

The deal will bring together Virgin’s 60 Airbus A320s with Alaska’s Boeing 737s and Bombardier Q 400s, for a total fleet of about 280 operating a combined 1,200 daily departures.

The addition of San Franciscobased Virgin America’s main routes connecting the US west and east coasts will strengthen Alaska’s coverage, which has built up from a base of connecting the huge, remote northwest US state to the lower west coast.

The combined group will be headquartered in Seattle with annual revenues of around $7 billion. Savings from the merger are expected to come in at about $225 million per year once they are fully integrated, according to the two companies.

“The combination expands Alaska Airlines’ existing footprint in California, bolsters its platform for growth and strengthens the company as a competitor to the four largest US airlines,” Alaska Air said in a statement.

At least at the outset, the two brands, both highly ranked in national customer surveys, will be maintained.

“Over the next few months Alaska will explore with the Virgin Group how the Virgin America brand could continue to serve a role in driving customer acquisition and loyalty to get the best from both brands,” Alaska Air said.

Virgin America was founded in 2007 as a separate company affiliated with Branson’s London-based group, which includes the Virgin Atlantic airline.