April 4, 2016, (c) Leeham Co.: Alaska Air Group and Virgin America confirmed weekend reports that they reached a deal to merge.
The replay of the Alaska webcast/conference call, with slide show, is here.
Rationale includes what LNC outlined in our March 29 post: growth, access to more gates and slots. Alaska officials said Virgin’s presences in California, combined with Alaska, will give Alaska to #1 market share position on the US West Coast, passing Southwest Airlines’ 21% by one percent.
Here are some highlights from the conference call:
- Alaska mainline exclusively flies the Boeing 737 and all its future orders are 737s. Virgin American, on the other hand, is exclusively Airbus A320 Family.
- “We are big believers in single fleet, so much so we bought another single fleet,” says Alaska, an official joked when asked about the divergent fleets.
- A decision whether to retain Airbus fleet is probably a couple of years away. A320neo order with 2020-2022 deliveries, has “favorable” cancellation clause should Alaska chose to do that. The Seattle Times reports there is only a $26m cancellation fee.
- The combined companies give Alaska access to gates at San Francisco and Los Angeles it can’t otherwise get. It also gets slots on the East Coast it can’t get.
- The two companies will maintain their brands for at least a couple of years, while Alaska decides what to eventually do.
- It will be a couple of years before Alaska decides whether to phase out the A320s operated by Virgin.
- Virgin only owns seven or eight of the A319/A320 fleet. Leases begin rolling off from 2020, making it easy then for Alaska to dispose of these aircraft.
- Alaska will take on $2bn in debt to pay for the deal, a cash purchase to Virgin shareholders at $57/share. Alaska will slow the current share buyback program through 2017. Wall Street didn’t like this news. Initially Alaska stock was off more than $4/share (>5%) in post-announcement trading.
The merger has to clear regulatory hurdles.
The Seattle Times has a long story here.