Alaska Air Group (ALK) will acquire Virgin America Inc. (VA) in a $2.6 billion deal that overcame JetBlue Airways Corp.’s (JBLU) interest in the carrier. The acquisition will give Alaska Air a foothold on the East Coast while boosting its business in the West Coast. The carrier will now take over key airports in Washington and New York.
Alaska Air has agreed to pay $57 a share for stock in Virgin America, making the deal worth about $4 billion with capitalized aircraft operating leases and debt.
Brad Tilden, CEO of Alaska Air, said on a conference call, “We’ve been thinking about an acquisition for a couple of years.” The CEO said the company is confident in its “ability to do well with this.”
Alaska Air says that its acquisition of Virgin America will allow the carrier to better compete with American Airlines Group Inc. (AAL), Delta Air Lines Inc. (DAL), Southwest Airlines Co. (LUV) and United Continental Holdings Inc. (UAL).
The carrier will see a 27% boost to its revenue, up to over $7 billion. Alaska Air will also see an annual cost savings of about $225 million after $350 million in integration costs.
With Virgin America’s fleet, 60 Airbus Group SE A320s and A319s, Alaska Air will have 280 aircraft. Altogether, the combined entity will offer 1,200 daily departures with hubs in Los Angeles, San Francisco, Anchorage, Seattle and Portland, OR.
The deal will also give Alaska Air access to hubs in the East Coast, including LaGuardia and JFK in New York, and Ronald Reagan Washington National in Washington, D.C.
David Cush, CEO of Virgin America, told employees in an email that the acquisition will give Virgin America a better chance of succeeding in an ever-changing industry.
Cush expects the sale to close in the “next several months,” but Tilden, Alaska Air’s CEO, anticipates it taking up to two years to receive a single operating certificate.
