"Delta eyes Virgin Atlantic Swoop"

[WorldTraveler]

The Sunday Times of London is reporting in this fair use excerpt:

AMERICA’S largest airline is plotting to take control of Virgin Atlantic after making a secret approach to the British carrier’s big Asian shareholder.
Delta Air Lines is understood to have offered to buy Singapore Airlines’ 49% holding in Virgin. If it succeeds, Delta’s European partner, Air France-KLM, may then buy part of Sir Richard Branson’s 51% stake, which would see him relinquish control of the airline for the first time.
Air France-KLM’s involvement is dictated by aviation rules, which say European airlines must be controlled by European nationals. Branson may retain a stake, and would, together with the Franco-Dutch group, hold more than 50%.
The deal would be a watershed for the entrepreneur. He set up Virgin Atlantic in 1984 and it has been instrumental in the rapid expansion of his business empire.

 

[SBN580]

Bloomberg Business News this was a vie to get more slots at London Heathrow. I say this metaphorically, "Does VA become, Delta Connection, operated by Virgin Atlantic?" Very long range connections, of course. It would be sad to see the VA flag fall. Branson's brainchild has been so bold. I have enjoyed flying on them.

 

[SBN580]

http://bloom.bg/TD6Q...PPNqJ&ootime=0s

Here is a link to another Bloomberg report on the news.

 

[johnny kat]

It is very apparent that DL has the best leadership team in the business. This further enhances the appeal of the global network and at the same time would bring tremendous pressure upon IAG.

I'm sure BA just hates this news. With that said, BA must be considering its' competitive response to DL. It stands to reason that BA would want more out of its AA partner. In a way this adds more pressure on AA to raise revenue.

 

[WorldTraveler]

There is no more reason to think that DL would dismantle VS or convert it to a connection carrier (on steroids) than to think that DL's investment in AeroMexico and Gol would have done the same thing. IN both cases, DL acquired stakes in those two Latin America carriers because the US does not have Open Skies with those carriers which means DL could not coordinate activities with them along with the fact that there are three US megacarriers and not enough potential partners in those countries. With a seat on the board of those two companies, DL can maximize the cooperation with those two carriers as well as ensure that DL has a partner in both of those countries.

Virgin Atlantic is a little different situation. There is Open Skies w/ the EU/UK but not enough meaningful slots. (Not that there are slot issues at São Paulo but there are also treaty issues which limit DL's growth. It is possible that when treaty issues are resolved, DL could convince Gol to give up some of its domestic slots for int'l flights).
VS operates a valuable brand - but they recognize that they are increasingly outclassed in a world of larger and larger alliances. VS has also made little real headway in keeping BA from growing its advantage over VS.
A DL partnership/ownership would undoubtedly also include membership in Skyteam which would help VS compete.
The loser in this is probably UA more than AA/BA since DL with this move would jump past UA in the UK.

VS does operate a fair number of destinations other than between the UK and the US so there is the possibility for DL to help push some traffic onto VS' network. VS also does not operate any small widebody aircraft such as the 767 or the 330-200 or even the 757 so it is possible that DL could help develop VS' network by adding some new thin routes.

While LHR is slot limited, LGW is still a viable airport that has the potential for more longhaul service than it has now and the use of small widebodies or the 757 could help grow VS' presence in the UK alongside DL and Skyteam. The same thing can be said about MAN and perhaps to a lesser extent and other British and Scottish airports.

As I have noted before, DL knew what was on its strategic "to do" list when it came out of BK and it has been consistently working on that list.
VS might not happen but DL apparently has the financial resources to do a deal to strengthen its presence at LHR and if that doesn't happen, then they will shift their focus to other items on the to-do list.

It is clear that the next phase of consolidation in the industry will be driven by international investments in other carriers... the domestic market might have one or two more deals left (and AA/US might be one of them). DL is strategically positioned ahead of its US peers to make investments beyond US airlines such as the refinery and in foreign carriers and could gain a first mover advantage just as it has gained in other parts of its business.

The vision for int'l aviation has always been that foreign investments in airlines would be allowed to occur just as they have in other industries.

 

[robbedagain]

from www.justplanenews.com there are couple of articles regarding this.... and in one it mentions the possibility of VS joining skyteam alliance. but remember their only in talks and that may not materialize either. as for flying i believe VS does operate A-330s A-340s 744s but not sure what other aircraft type they operate

 

[WorldTraveler]

Of course talks may not lead to a deal, but Branson has admitted that VS needs to be in an alliance and given that there could be a choice between Skyteam and Star, DL is willing to put money into the decision.
Whether Branson sells out his own personal stake is probably not the point - SQ has been trying to get out of VS for a number of years w/o success. With LH in the midst of a restructuring and UA w/ much less strategic need for more LHR presence, the chances are high that if SQ can accept DL's terms (and vice versa) then DL could have an edge. AF/KL is likely to be a part of the deal only enough to ensure that DL/AF/KL have enough control to ensure that DL's interests are maintained above Branson's.

VS operates A340-300s and 600s; the 333s are fairly new. 744s serve many high density routes, often w/ low premium seat counts. VS has 380s and 789s on order.

There probably is some opportunity to streamline DL/VS's slots at LHR but the bigger opportunity for both is market mass and greater connectivity to a global system.

The equity is just a means to ensure DL's interests are maintained long term as well as provide the opportunity for DL to make decisions that Branson might resist.... I'm not sure what those might be.

I wouldn't be surprised if DL is trying to add a side deal of sort sort involving SQ to the VS deal.

 

[SBN580]

There is no more reason to think that DL would dismantle VS or convert it to a connection carrier (on steroids) than to think that DL's investment in AeroMexico and Gol would have done the same thing. IN both cases, DL acquired stakes in those two Latin America carriers because the US does not have Open Skies with those carriers which means DL could not coordinate activities with them along with the fact that there are three US megacarriers and not enough potential partners in those countries. With a seat on the board of those two companies, DL can maximize the cooperation with those two carriers as well as ensure that DL has a partner in both of those countries.

Virgin Atlantic is a little different situation. There is Open Skies w/ the EU/UK but not enough meaningful slots. (Not that there are slot issues at São Paulo but there are also treaty issues which limit DL's growth. It is possible that when treaty issues are resolved, DL could convince Gol to give up some of its domestic slots for int'l flights).
VS operates a valuable brand - but they recognize that they are increasingly outclassed in a world of larger and larger alliances. VS has also made little real headway in keeping BA from growing its advantage over VS.
A DL partnership/ownership would undoubtedly also include membership in Skyteam which would help VS compete.
The loser in this is probably UA more than AA/BA since DL with this move would jump past UA in the UK.

VS does operate a fair number of destinations other than between the UK and the US so there is the possibility for DL to help push some traffic onto VS' network. VS also does not operate any small widebody aircraft such as the 767 or the 330-200 or even the 757 so it is possible that DL could help develop VS' network by adding some new thin routes.

While LHR is slot limited, LGW is still a viable airport that has the potential for more longhaul service than it has now and the use of small widebodies or the 757 could help grow VS' presence in the UK alongside DL and Skyteam. The same thing can be said about MAN and perhaps to a lesser extent and other British and Scottish airports.

As I have noted before, DL knew what was on its strategic "to do" list when it came out of BK and it has been consistently working on that list.
VS might not happen but DL apparently has the financial resources to do a deal to strengthen its presence at LHR and if that doesn't happen, then they will shift their focus to other items on the to-do list.

It is clear that the next phase of consolidation in the industry will be driven by international investments in other carriers... the domestic market might have one or two more deals left (and AA/US might be one of them). DL is strategically positioned ahead of its US peers to make investments beyond US airlines such as the refinery and in foreign carriers and could gain a first mover advantage just as it has gained in other parts of its business.

The vision for int'l aviation has always been that foreign investments in airlines would be allowed to occur just as they have in other industries.

I did not know they even had a piece of GoL or AeroMexico! Wow! And I guess that AA, US and UA just do not have that many moves on the board. Airline business/economics is as usual to me somewhat perplexing in how all the pieces work, but always fascinating.

 

[700UW]

VS is in the process of leasing A320 aircraft to fly domestic routes in the UK, they were awarded all the domestic slots that BMI use to hold and BA had to divest.

 

[FrugalFlyerv2.0]

Is it really worth it for any airline, not just DL, to go through the hassle of acquiring all of VS?

I think most airlines would only want (or need) the LHR slots and forget about most of the VS planes and people. I think that DL already has a decent presence at LHR and needs a few more slots (half a dozen?) to match AA and UA. Likewise, AF/KL (and EU-based skyteam airlines) as well as LH (and EU-based * alliance carriers) probably would only want slots, not the whole airline. The only airline that would be willing to acquire all of VS would be BA, but I don't know if the reg. authorities would allow that transaction.

Also, I wonder if AF/KL are really thrilled about the idea of DL acquiring VS? I mean, if I was a loyal skyteam customer and would then have the option of using VS instead of DL/AF/KL for long-haul, the decision woudl be a no-brainer ......

 

[WorldTraveler]

It is precisely Virgin's "quirkiness" that makes it both attractive as a brand but also one that doesn't fit in an industry that has figured out how to succeed using other definitions. The same can be said about Virgin America to an extent. VS is a viable brand but it does need some major strategic changes.

DL may want the slots alone but that is probably impossible to do given that VS must remain as a European company; DL could slowly liquidate the company and take its assets -but that is possibly likely only if Branson decides it is worth more to do so and he is no longer in control. It is not a certainty that Branson wants to remain in the airline industry, certainly as a major investor. VS is losing money, Virgin America is losing money. Branson is a business person and he is smart enough to know that there are times when it is necessary to sell out and let someone else run the show. Whether he is at that point cannot be known right now.

Whether he remains a major investor, I doubt very seriously that DL will sign a deal that allows Branson to continue to make decisions - or prevent DL from making decisions that DL believes are necessary - with an investment as large as DL has on the line. It is precisely because SQ has not had sufficient control over its investment that it has lost so much money. SQ is a well-run airline and DL is certainly going to learn from their mistakes.

Add in that there are labor implications within VS if DL were to strip out the slots and a wholesale gutting of VS is even more unlikely.

A good chunk of VS is also leisure based at LGW and is less valuable for the slots but may still may make money. I have a hard time believing a 744 largely full of tourists can make money to Florida and the Caribbean when the employees are mainline airline employees, but I could be wrong. A 333 in a high density configuration, maybe. Part of VS' problem is that it started as a low fare carrier but hasn't grown revenues as fast as its costs have grown as its employees have become more senior. Add in Branson's fixation w/ 4 engine aircraft which are not necessary on any of VS' routes and VS has some serious structual issues taht must be resolved.

BTW, DL currently has 9 flights/day to LHR which is less than half what AA has on its own metal and far less considering the AA/BA JV; UA post merger w/ CO is a similar size at LHR as AA but w/o the JV.
VS also serves a number of gateways outside of DL's network that could not support int'l service except to a large foreign hub such as EWR, IAD, ORD, and SFO. In addition to the size in DL's key cities that are also major DL cities such as JFK, BOS, and LAX and which support DL int'l flights, cities like SFO, EWR, ORD, and IAD which are other airlines' hubs become much more viable for DL when they offer one to to int'l flights - even via a partner.

 

[FrugalFlyerv2.0]

DL may want the slots alone but that is probably impossible to do given that VS must remain as a European company; DL could slowly liquidate the company and take its assets -but that is possibly likely only if Branson decides it is worth more to do so and he is no longer in control. It is not a certainty that Branson wants to remain in the airline industry, certainly as a major investor. VS is losing money, Virgin America is losing money. Branson is a business person and he is smart enough to know that there are times when it is necessary to sell out and let someone else run the show. Whether he is at that point cannot be known right now.

Whether he remains a major investor, I doubt very seriously that DL will sign a deal that allows Branson to continue to make decisions - or prevent DL from making decisions that DL believes are necessary - with an investment as large as DL has on the line. It is precisely because SQ has not had sufficient control over its investment that it has lost so much money. SQ is a well-run airline and DL is certainly going to learn from their mistakes.

So DL could possibly do to VS what they did to Pan Am (ofcourse Branson would have to be bought out by AFKL or a combination of AFKL, IAG, LH ...or whatever EU carrier(s)).

I'm not one for making predictions, but I don't think it is a too far fetched idea that if Branson is bought out, VS gets carved up. DL gets a few (half a dozen?) LHR slots and the rest is sold off to a combination of AFKL, BA, LH, etc. It may be that VS is more valuable in pieces than as a whole.

A good chunk of VS is also leisure based at LGW and is less valuable for the slots but may still may make money. I have a hard time believing a 744 largely full of tourists can make money to Florida and the Caribbean when the employees are mainline airline employees, but I could be wrong. A 333 in a high density configuration, maybe. Part of VS' problem is that it started as a low fare carrier but hasn't grown revenues as fast as its costs have grown as its employees have become more senior. Add in Branson's fixation w/ 4 engine aircraft which are not necessary on any of VS' routes and VS has some serious structual issues taht must be resolved.

While LGW is certainly not as valuable as LHR, if If Branson is bought out, the LGW assets could easily be sold to EasyJet or any other EU carriers wanting a larger presence at LGW.

 

[WorldTraveler]

VS operates between 20-25 longhaul flights/day from LHR, about half of which are to destinations other than the US such as in the Middle East, Africa, India, and E. Asia. Some of those slots are with late evening departures from LHR so are not worth near as much as the mid-day slots.

DL COULD take carve up VS, get rid of everything except for the US operations and use the slots for the US. Based on the $50M that CO paid for several pairs of slots shortly after LHR opened to CO et al,, VS' slots could be worth about $1B which is probably in the ballpark of what the 49% of VS owned by SQ is worth... and it may be worth less than that.

You still have to figure out how to get rid of a fleet of aircraft including a bunch of 340-600s which is not terribly popular on the market. The 343s and about half of the 744s could be disposed of fairly soon based on age.
VS also has 789s and A380s on order.

Also, the intra-UK slots that VS won must be used by VS within the UK... DL could keep a vestige of VS to operate them but they also run the risk of losing those slots - and those slots could help DL increase its UK presence.

The LGW operation might make money - I'd be surprised if Branson is operating a whole division of the company at a loss... but it could certainly make more money if there were some changes made. It still is possible that LGW could also be redeveloped to add some longhaul flying beyond London that can't be done at LHR. LHR may be the preferred airport for London business travel but LGW is probably not unlike EWR waiting for someone to come up w/ the right plan.
There are still a number of key global markets which VS does not serve including in Latin America and Russia. OTOH, they probably operate some flights such as to SYD which will be harder and harder to make work if they even work now.

It is far more likely that DL makes it clear to Branson they will invest as long as they have some control over what needs to be done in order to turn VS around. If that doesn't work within a couple years, then you may be right. DL's investment is not much more than the underlying slot values which may be their fallback plan.

The Pan Am transatlantic and Shuttle transaction was an asset acquisition. The Pan Am Latin America investment was as a minority stakeholder. When the new Pan Am (Latin America) couldn't work, DL pulled the plug and PA collapsed. DL got nothing for its investment.

But Virgin does have value as a business and it can probably be turned around w/ some real airline knowledge from both sides of the Atlantic along with real marketing from both AF/KL and DL.

 

[signals]

robbedagain said:
but remember their only in talks and that may not materialize either

I'll call that the luck of US. The talk is what US is about. I doubt Delta is playing a blind man's bluff(Disclaimer:Anything can happen), but rather this may be a calculated move by the top Skyteam players to bring Virgin in.

On the other hand, I believe that Sir Nut Branson is persuing the bigger nuts willing to pay top dollar to go to, well...
http://www.virgingalactic.com/

 

[WorldTraveler]

DL has talked w/ SQ and VS before; VS was a codeshare partner before so the two have "peaked under the covers."

I expect that Branson's losses in the airline industry are enough to force him to consider selling out and letting someone else run the show and still get some of the money.

The vast majority of the public will never know that VS is half owned (or perhaps more) and possibly controlled by DL as long as Virgin's name stays plastered on the side of the planes just as few people know that DL is pulling strings behind the scenes at AM and G3.