It is no secret that Singapore Airlines has tried to divest themselves of their 49% ownership stake in Virgin Atlantic from time to time. Might they have found a willing suitor in Delta Airlines? That’s what is being reported in the London media this weekend. To make the transaction work Delta would purchase the 49% stake, the maximum permitted by non-European parties, and Air France/KLM would purchase an additional stake. The SkyTeam partners would then hold a majority of the shares giving them control of the company. For Sir Richard Branson, the airline’s founder and public face it would represent the first time since he started the carrier nearly 30 years ago that he would no longer be in charge.
The move is almost entirely focused on gaining access to Virgin’s slots at London‘s Heathrow airport. The consolidation of British Airways and bmi has changed the competitive landscape at Heathrow making it even more difficult for Virgin Atlantic to compete, particularly without local and regional feed to their operations. A SkyTeam takeover of the slots and routes could see major changes to the destinations served and operational style.
Two years ago Virgin Atlantic hired outside advisors to help them explore options. Two years ago Deutsche Bank was hired to help the carrier consider different scenarios. Delta was linked to the discussions at that time as well but nothing came from it. Perhaps this time around the outcome will be different. Given the recent rumblings that Virgin Atlantic is looking to join one of the major alliances (and my guess that SkyTeam is the best fit) it really isn’t all that hard to see how having the carrier merge into the other airlines rather than just be a partner would offer some competitive advantages.
Keep your eyes and ears open; this one could be interesting…
- Did Virgin Atlantic actually win the bmi buy-out battle?
- Virgin Atlantic in "fairly advanced talks" to join an alliance
- Virgin Atlantic adding domestic service to its route map
- bmi confirms Star Alliance exit; only two weeks left
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So under this scenario DL/KL/AF would keep the Virgin brand intact? Or would they eventually be looking to takeover and merge it in entirely?
I suspect DOT and DOJ will have something to say on the “bilateral” and antitrust sides.
It is not clear if they’d keep the brand, Ryan. We’re a long way from that being an issue. My guess is they would trash it and raid the company for the slots, sortof like what Southwest did to gain access to Atlanta, NYC and DCA by buying AirTran. But that’s just my hunch. I’m not so sure there is a market for the VS product the way they are currently positioned, especially without feed at Heathrow.
What makes you think the Feds will have a problem with it, Greg? DL/AF/KL (and AZ, too) are already approved for joint marketing and financial operations on TATL markets. No real issues with expanding that in London, too, that I see. They’d still be quite far behind BA/IB in slots, routes and lift in general so not a huge deal.
Big difference between approval of a joint marketing arrangement for a group of carriers hubbed in CDG, AMS and FCO/MXP and a merger/near-merger that adds an LHR hub and all of those slots.
It might get approved, but it’s not an easy road, particularly in a second Obama administration when the deal involves a company that is not noted for being terribly friendly to unions.
Do you think that VS would have had trouble getting in on the SkyTeam TATL ATI as a stand-alone company? I don’t. DL owning part of it would not change the competition much more than just having them in the ATI.
Perhaps it doesn’t change the competition tremendously, but it definitely changes the standard and potential for legal review/withholding of approval. I’m also not totally convinced that it would have been a slamdunk that VS would get in to the ATI, because it creates what is much closer to a duopoly on US-UK air traffic.
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