Delta set to land Virgin stake for under $500m
Delta Air Lines is nearing a deal to buy a 49 per cent stake in Virgin Atlantic Airways from Singapore Airlines and may pay less than $US500 million for it, three people familiar with the matter said.
The price range is $US300 million ($A286 million) to $500 million and an agreement may be announced this week, said the people, who asked not to be identified because the talks are private. Singapore Airlines paid £600 million for the Virgin Atlantic stake in 1999.
Delta and Virgin Atlantic may seek a joint venture on transatlantic routes as part of the arrangement, two of the people said. Virgin Atlantic's base at London Heathrow airport is a gateway for flights across the North Atlantic, the world's most lucrative market for premium passengers.
"Heathrow access, that's what Delta finds attractive here," said Savanthi Syth, an analyst at Raymond James & Associates in St Petersburg, Florida, who rates Atlanta-based Delta outperform. "This is not necessarily a carrier that they expect to make a big return on investment on. There's a reason Singapore is getting out." Virgin Atlantic, founded and majority-owned by British billionaire Sir Richard Branson, posted a pretax loss of £80.2 million ($A123 million) for the year ended in February, and has delayed adding planes.
Representatives of Virgin Atlantic, Singapore Airlines and Delta declined to comment about the sale process.
Delta, Air France-KLM and their SkyTeam partners are the smallest alliance group at Heathrow, with about 5 per cent of takeoff and landing slots. Oneworld, led by British Airways and American Airlines, dominates with almost half of all service, followed by United Continental Holdings and its Star Alliance partners with about a quarter of slots.
Air France-KLM Group isn't participating in discussions between Delta and Singapore Airlines, Brigitte Barrand, a spokeswoman, said today in an email.
Singapore Airlines said last week that negotiations with "interested parties" were under way and may not result in a transaction. The company has written off goodwill amounting to about 96 per cent of the purchase price of Virgin Atlantic, a spokeswoman, Germaine Shen, said last week.
A "reasonable price" for the 49 per cent Virgin stake would be about $US200 million to $US300 million, a Barclays analyst, David Fintzen, wrote in a note to clients this month.
Delta rose 0.3 per cent to $10.14, the highest since November 13, at the close in New York. The shares have gained 25 per cent this year. Singapore Airlines slid 1.4 per cent to $S10.68.
Sir Richard, who holds 51 per cent of Virgin Atlantic, will probably remain in control of the Crawley, England-based carrier, chief executie Steve Ridgway said last week in an interview.
Today, Sir Richard rejected speculation that he might give up control of Virgin Atlantic and that the carrier's brand, shaped by perks such as a cheese cart and champagne for passengers, might disappear. On his blog, Sir Richard pledged £1 million to the staff of British Airways "if Virgin Atlantic disappears within say five years". Virgin Atlantic operates about 40 planes, while Delta, the world's second-largest carrier, has 725 aircraft in its main jet fleet.