Virgin ready for alliance as Delta said to mull buying stake

LONDON — Virgin Atlantic Airways, which flew solo for a decade as rivals formed the global groups that dominate the industry, may be ready to come in from the cold as Singapore Airlines considers selling its 49 percent stake.

With Delta Air Lines mulling a bid, according to two people familiar with the matter, Virgin could form a North Atlantic venture with the U.S. carrier and its European partner Air France-KLM Group while joining the pair’s SkyTeam alliance.

“Virgin has rather lost its way as the world consolidates and they really need to bite the bullet,” said John Strickland, director of JLS Consulting in London. “Signing up to SkyTeam would be part of it, I’m sure, and they could bring a rock solid basis to Delta’s trans-Atlantic alliance with Air France-KLM.”

Richard Branson, Virgin Atlantic’s founder and the holder of a 51 percent stake, said last month that he’s seeking an alliance for the carrier, which faces pressure from rising fuel prices and a joint venture of British Airways and AMR Corp.’s American Airlines at its London’s Heathrow airport base.

Any sale is likely to see billionaire entrepreneur Branson remain in control of Crawley, England-based Virgin Atlantic, Chief Executive Officer Steve Ridgway said Monday in an interview.

“He is the majority shareholder,” Ridgway said following a statement from Singapore Air overnight. “What they said today, it’s about Singapore selling some or all of their stake.”

For Atlanta-based Delta, the second-biggest U.S. airline, a deal would increase access to Europe’s busiest hub and boost its ability to capture lucrative trans-Atlantic business traffic.

“Virgin Atlantic has some interesting slots at Heathrow and slots are a very scarce commodity in the U.K.,” said Arnaud Bouchet, a Singapore-based analyst at BNP Paribas.

Delta is discussing buying all or part of the Singapore stake, said the people, who asked not to be identified as the matter is private. As a U.S. company, 49 percent is the maximum holding it can take under European Union rules. Paris-based Air France-KLM, Europe’s top carrier, might also purchase stock, they said.

The deal would be a logical one for the French company, though its purchasing power would be limited to a stake of no more than 20 percent because of covenants attached to its debt, said Yan Derocles, an analyst at Oddo Securities in Paris.

Representatives of Delta, Virgin and Air France-KLM declined to comment. Negotiations with “interested parties” may not result in a transaction, Singapore Airlines said in its statement.

Singapore Air paid 600.3 million pounds for the Virgin stake in 1999, or about $961 million today. The stock has advanced 5.4 percent this year, valuing the company at S$12.5 billion ($10 billion).

The Asian carrier is looking to sever ties with Virgin to focus on local markets where opportunities are opening up at the same time that Gulf carriers Emirates, Qatar Airways Ltd. and Etihad Airways present new challenges, Ridgway said.

“India has opened up, China has opened up and there are three fearsome competitors on their western side,” the CEO said. “That’s what their agenda is about. I’ve got to leave it to Singapore now, they’ve made that stock-exchange announcement and we just need to let them work that through.”

IAG bought Deutsche Lufthansa AG’s BMI unit this year to further turn the screw on Virgin. Adding BMI boosted the share of Heathrow slots held by IAG, which includes Spanish carrier Iberia, above 50 percent. The hub is near-capacity and its operator is struggling to win government backing for construction of a third runway.

Cooperation between British Airways, Iberia and American Airlines, the U.S. co-leader of the British carrier’s Oneworld alliance, has also created the most powerful force on trans- Atlantic routes, ahead of Delta and Air France-KLM and Star Alliance partners Lufthansa and United Continental Holdings.

Branson lobbied antitrust regulators for more than a decade in an unsuccessful effort to prevent the BA-AMR tieup.

Virgin Atlantic has been seeking partners after hiring Deutsche Bank to assess options in 2010. The carrier posted a pretax loss of 80.2 million pounds for the year ended February.

The airline is adding its first short-haul routes from northern England and Scotland to Heathrow in order to maintain feeder traffic to its hub that was previously provided by BMI, whose takeover Branson had also sought to have blocked.

“Virgin has had been as much focused on trying to stop things that other carriers have been doing as on its own strategy,” Strickland at JLS Consulting said.

Branson is also seeking a successor to Ridgway, 61, who retires early next year after 11 years as CEO. During his tenure the carrier has emphasized perks such as spa treatments and high-design lounges to win high-end travelers.

Virgin is “well down the road” in choosing a new chief, Ridgway said in the interview, adding that the aim is to make an announcement before Christmas or slightly after and that candidates won’t be put off by the likelihood of a new investor.

“All these things are about opportunities,” the executive said. “If there is a good opportunity there the job remains as attractive as it is today.”

Delta, also the world’s second-largest carrier, is working to increase its share of international business travel with moves including a $1.2 billion overhaul of facilities at New York’s John F. Kennedy International Airport, catching up with rivals.

Singapore Airlines doesn’t need more access at Heathrow because it operates Airbus SAS A380 superjumbos to the airport, said BNP Paribas’s Bouchet. The economic slowdown is also damping travel, while demand for Europe-Asia flights is generally not so great as on routes across the Atlantic.

The carrier is boosting its focus on the Asia-Pacific region to tap faster-growing markets. It last month purchased 10 percent of Branson-backed Virgin Australia Holdings, the nation’s second-biggest airline, for A$105 million ($109 million), while regional unit SilkAir in August signed an outline deal for 54 Boeing 737 planes to double its fleet.

“If cash comes from Virgin and they are contemplating a new acquisition in the region it could be quite beneficial,” said Bouchet. “They are very opportunistic and their cash position is really fantastic.”

— With assistance from Mathieu Rosemain in Paris, Patricia Kuo in London and David Fickling in Sydney.


More in Herald Business Journal

Snohomish County’s campaign to land the 797 takes off

Executive Dave Somers announced the formation of a task force to urge Boeing to build the plane here.

A decade after the recession, pain and fear linger

No matter how good things are now, it’s impossible to forget how the collapse affected people.

Panel: Motorcycle industry in deep trouble and needs help

They have failed to increase sales by making new riders out of women, minorities and millennials.

Costco rises as results display big-box retailer’s resiliency

Their model has worked in the face of heightened competition from online, brick-and-mortar peers.

For modern women, 98-year-old rejection letters still sting

In a stark new video, female Boeing engineers break the silence about past inopportunity.

Tax reform needs the public’s input on spending priorities

The GOP tax plan is a good idea, but the next step should give us a voice on how taxes are spent.

Commentary: GM, Boeing fight a war of words over Mars

Boeing is strongly signaling how crucial deep-space exploration is to its future.

Under cloud of ethics probes, Airbus CEO Enders to step down

He leaves in 2019 after 14 years. Meanwhile, aircraft division CEO Fabrice Bregier leaves in February.

$4.99 sandwich promotion irks some Subway business owners

Management insists that “most franchisees support the promotion.”

Most Read