Delta Airlines Inc. (DAL - Analyst Report) has secured a tentative approval from the U.S. Department of Transportation (DOT) for its planned tie up with Virgin Atlantic for nonstop flights between the U.S. and the U.K. This takes Delta a step closer towards antitrust immunity, the final hurdle before the trans-Atlantic joint venture (JV) takes off.
Notably, in Dec 2012, Delta proposed to acquire a 49% stake in British carrier Virgin Atlantic from Singapore Airlines. The acquisition closed in Jun 2013 after the U.S. Department of Justice and European Commission cleared the deal. However, DOT clearance for the trans-Atlantic route is pending.
Now, the JV appears on track, with the DOT favoring the amalgamation citing it will promote competition within the U.S. and U.K. markets and in turn benefit customers. The DOT also noted that the JV will create a strong contender to one of the largest airline alliances, Oneworld, which includes heavyweights like American Airlines, British Airways and Iberia.
The $360 million stake purchase will subsequently give Delta more control over the New York to London network, which is being dominated by American Airlines and British Airways. The Delta-Virgin tie up is expected to hold the second spot in this lucrative route with nine daily roundtrip flights across the Atlantic, pushing United Continental Holdings Inc. (UAL - Analyst Report) to the third position.
The DOT has given a 14-day period to raise objections to its approval. If there are no objections to the JV, the regulatory body will give its final go-ahead.
Per the joint venture agreement between Delta and Virgin Atlantic, both carriers will share the expenses and revenues of the flights. Delta holds a commanding position in the U.S. market while Virgin Atlantic enjoys hefty slots at the popular Heathrow Airport.
We believe the Delta-Virgin Atlantic alliance will hugely benefit customers with expanded and enhanced flight connectivity to key markets, better pricing and suitable booking options.
Delta operates with the likes of Southwest Airlines Co. (LUV - Analyst Report) and carries a Zacks Rank #3 (Hold). However, sector stock U.S. Airways Group Inc. looks attractive with a Zacks Rank #1 (Strong Buy).