The aviation industry, where mergers and acquisitions have been quite rampant saw Delta Airlines (NYSE:DAL) buying Singapore Airline’s 49% stake in Virgin Atlantic for $360million.
The merger came in the wake of a trend seen in the aviation industry to consolidate. Delta had earlier bought Northwest Airlines for $3.1billion in 2008. United Airlines purchased Continental Airlines two years ago. In another development US Airways Group, Inc. (NYSE:LCC) is in discussion with American Airlines for a possible merger.
As part of regulations, global airlines cannot purchase more than 50% stake in an airline from a carrier that does not belong to the same country. This global airline ownership law prevents a 100% merger of Delta and Virgin.
The merger between the two carriers has been with the objective of strengthening both the airlines and for the purpose of providing a strong competitor in the New York- London route. It will widen Delta Airlines (NYSE:DAL) international horizons, which is only second to United Continental (NYSE:UAL). Further it will give Delta Airlines (NYSE:DAL) a coveted place in London’s Heathrow airport and greater access to European and Asian markets
For Virgin Atlantic it is a business move where it will continue to operate in its own style, as 51% stake would be held by Sir Richard Branson. Virgin Atlantic’s arch rival British Airways CEO Willie Walsh laid a bet of $1million saying that Virgin Atlantic will not be able to keep its name and will disappear into oblivion if its Singapore Airlines’ stake was bought by Delta. Richard Branson responded to this bet with ‘knee in the groin’ if British airlines loses.
The Delta- Virgin merger will allow both carriers to share costs and revenues for all joint ventures and 31 round trips between U.K and North America. Frequent fliers of both carriers will have access to both Delta Sky Club and Virgin Atlantis Clubhouse lounges.
The venture that seeks anti-trust immunity from the U.S Department of Transportation is expected to come into effect by the end of 2013 after the European Union, U.S Department of Justice and other authorities have reviewed it.
The deal is no surprise when Singapore Airline’s (SINGF) announcement looking for a buyer for its 49% stake in Virgin Atlantic.
Shares of Delta Airlines (NYSE:DAL) were up by 5.13% to close at $10.66, shares of United Continental (NYSE:UAL) were up by 3.93% to close at $21.71, shares of SINGAPORE AIR SIA (PINK:SINGF) were up by 0.80% to close at $8.82.