Delta Airlines (NYSE:DAL) is buying a 49% interest in Virgin Atlantic Airways for $360 million in a deal that will strengthen Delta’s New York to London schedules, as well as bolster its presence in Europe. Eccentric billionaire Richard Branson will still own a 51% controlling interest in Virgin Atlantic and when asked about the deal he said, “The partnership allows both carriers to offer a greatly expanded network at Heathrow and to overcome slot constraints, which have limited the growth and competitive capability of both airlines.”
The Deal and Other Delta Expansion
Delta has contemplated buying Virgin Atlantic from Singapore Airlines for a couple of years, but the two companies were not able to agree on a price. Singapore Airlines bought its interest in Virgin Atlantic in 2000 for 600 million British pounds (about $966 million), and said their investment had, “not performed to expectations and the synergies the parties originally hoped for have not materialized.”
Delta CEO Richard Anderson obviously sees more synergies in this deal than Singapore Airlines was able to realize and he said the deal will, “Strengthen both airlines.” Virgin had an 80.2 million British pounds ($129 million) loss in its last fiscal year, while Delta earned $854 million in its last year. Virgin operates on a February 29th year end, but Delta’s fiscal year end is December 31st, so these figures are not for exactly the same period.
Other Delta Expansion
In addition to its purchase of a 49% interest in Virgin Atlantic, Delta is also creating a joint venture with the company to team up on 31 daily roundtrip flights between North America and the United Kingdom. These deals with Virgin are a part of Delta’s larger expansion strategy. The company has also been active on other expansion fronts. Delta made a $65 million investment in Grupo Aeromexico SAB earlier this year and will be investing $1.2 billion to build a new terminal at JFK Airport. The company also recently completed a deal with US Airways as part of its plans to expand its presence at New York’s La Guardia Airport.
Virgin Atlantic Expansion in Europe
Just yesterday, Virgin Atlantic announced it would begin expanding its flights within the United Kingdom, adding flights to Edinburgh and Aberdeen Scotland. The new flights that are planned will add almost a million seats per year to Virgin’s domestic flight schedules.
Delta’s Global Presence
Delta will be seeking immunity from U.S. antitrust regulations as a part of bringing Virgin Atlantic into its fold. They will try to get approval to coordinate flight schedules, fares, and even seating on each other’s aircraft. American antitrust laws are very strict when it comes to any type of arrangements that could affect pricing, so this aspect of Delta’s strategy is a question mark for now.
As with any large corporate acquisition, the Delta-Virgin deal still has legal and regulatory hurdles to clear before the transaction will be finalized, so the antitrust immunity Delta seeks is only one aspect of the deal that needs approval. What is clear is that Delta continues to grow and bolster its position as a major global airline.
