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Delta On Track with Virgin Buy
BA DAL UAL
Delta Air Lines ( DAL - Analyst Report) has successfully crossed two of the three regulatory hurdles in the path of its planned stake purchase of Virgin Atlantic Airways Ltd. The U.S. Department of Justice as well as the European Commission gave their green signal for the proposed acquisition. However, the deal will be completed following the antitrust approval from the U.S. Department of Transportation, which is expected in the latter part of the year.
In December last year, Delta confirmed its plans to buy a 49% stake in British carrier Virgin Atlantic that is currently with Singapore Airlines. The remaining 51% stake will be retained by the Virgin Group. Delta Air Lines will shell out £224 million or $360 million for the purchase and substantially gain more control over the New York to London network – one of the busiest air itineraries across the globe.
Interestingly, the air travel network between the U.S. and United Kingdom, including the one between the two foresaid cities, is dominated by a joint venture of AMR Corp.’s American Airlines and British Airways with the majority of the slots at London Heathrow Airport under their control.
The regulatory boards on both sides of the Atlantic completed their respective investigations, before permitting the deal to proceed. Both the department stated that the deal will not pose an antitrust threat, with Delta and Virgin Atlantic still continuing to stand as strong competitors to the American Airlines-British Airways partnership as well as other airlines.
Following the partnership, Delta Air Lines and Virgin Atlantic will gain 36% access to the New York-London travel route, second to the 51% control exercised by British Airways and AMR Corp. United Continental Holdings ( UAL - Analyst Report) will have the third position with 13% of the market share.
Per the joint venture agreement between Delta and Virgin Atlantic, both carriers will share the expenses and revenues of the flights. The two companies aim to operate 31 total daily flights both ways between the United Kingdom and North America during the peak season, with 23 flights to and from the Heathrow airport.
We believe that with this transaction, Delta and Virgin Atlantic target to offer additional frequent quality travel options for the trans-Atlantic flyers. The amalgamation of Virgin Atlantic’s hefty slots at the Heathrow airport and Delta’s commanding position over the U.S. airline network are expected to work in favor of passengers with extensive travel plans. This will hugely benefit customers with expanded and enhanced flight connectivity to key markets, better pricing and suitable booking options.
Delta – which will start seasonal non-stop flights every Saturday from December to various destinations utilizing The Boeing Company’s ( BA - Analyst Report) aircraft – currently retains a Zacks Rank #3 (Hold) rating.