The parent company of Alaska Airlines has struck a deal to buy Virgin America, creating a West Coast-focused airline. If approved by regulators and Virgin America's shareholders, the combined airline will be the fifth-largest U.S. carrier, according to Alaska Air Group.
"By bringing them together, we're creating the premier airline for people who live anywhere on the West Coast," Alaska Air Group CEO Brad Tilden said in a statement.
News of the $2.6 billion deal comes after a heated bidding war with JetBlue. According to The Wall Street Journal, "a person familiar with the jousting said it was 'a fierce back and forth between the two sides, with multiple bids for a number of days.' But ultimately, JetBlue 'put the pencil down' because the price had gotten too high."
Virgin America founder Richard Branson says in a statement, "Consolidation is a trend that sadly cannot be stopped. ... I would be lying if I didn't admit sadness that our wonderful airline is merging with another."
Branson adds that because he is not a U.S. citizen, the "Department of Transportation stipulated I take some of my shares in Virgin America as non-voting shares, reducing my influence over any takeover. So there was sadly nothing I could do to stop it."
Under terms of the agreement, Alaska will pay $57 in cash per share of Virgin America. Including existing debt and capitalized aircraft operating leases, the total deal is expected to be worth $4 billion. Both companies' board of directors have approved the merger agreement.
The new company would be headquartered in Seattle, with a fleet of 280-plus aircraft, according to a fact sheet. Revenues are projected to rise 27 percent, to some $7 billion annually as a result of the deal, which is expected to close by Jan. 1, 2017.
NPR's Chris Arnold tells our Newscast unit that "Alaska Airlines started under another name 84 years ago, flying three-seater, single-engine planes out of Anchorage." He adds:
"Over the years, it's flown routes to Russia. And beginning in 2001, it started to dramatically expand its footprint around the U.S.
"That's a major goal of this deal with Virgin America. The two airlines have very few routes that overlap. Alaska says that will help the deal win regulatory approval."
The Associated Press reports that Virgin America "went public in 2014 and while it has experienced growth in Dallas and added new service to Hawaii and Denver, the airline was having trouble getting enough takeoff and landing slots at busy New York airports." Additionally, according to the news service, "its limited size and schedule made it difficult for the company to compete with bigger carriers for lucrative business travelers."
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