Delta is in talks to buy Singapore Airlines’ 49% stake in Virgin Atlantic Airways. According to the report, Singapore Airlines could sell off its 49 percent stake in Richard Branson’s venture to Delta Air Lines, Inc. (NYSE:DAL), which is supposed to be bidding for majority stakes. Delta Air Lines, Inc. (NYSE:DAL) is the biggest airline in the U.S.
Delta Airlines has been making efforts for more than two years now to acquire the stakes in Virgin Atlantic Airways, but could not possibly close the deal, due to disagreements over price and certain other issues. It is not known whether this time it could end up buying the stakes. With the acquisition, Delta Air Lines, Inc. (NYSE:DAL) could gain access to Europe’s busiest airport and enhance its ability to garner lucrative Trans-Atlantic business traffic.
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“Virgin Atlantic has some interesting slots at Heathrow and slots are a very scarce commodity in the U.K.,” said Arnaud Bouchet, a Singapore-based analyst at BNP Paribas SA (EPA:BNP) (PINK:BNPQY). This may be “an interesting opportunity” for Singapore Air to sell its stake, he said.
Branson has been scrutinizing the possibilities for Virgin Atlantic Airways for quite a few years. Virgin nearly entered into a deal with Air France KLM in 2011. In 2011, he said: “We realised for the long-term stability of Virgin Atlantic we needed to look at an alliance partner, and whether it is purely an alliance or more than an alliance we’re completely undecided. Most of the people we talked to are keen to have Virgin as part of their alliance. My preference would be to keep control of the airline”.
Singapore Airlines bought a 49 percent stake in the Virgin Atlantic Airways in the year 1999 with the hopes of getting approval to fly transatlantic routes out of London. The approval, however, was not given. Since 2011, SIA has been open to selling Atlantic. Singapore Airlines decided upon selling its stake as Virgin is struggling from increasing fuel prices and growing competition. It posted a loss amounting to 80 million pounds last year.
“When SIA bought Virgin, they expected to be given some approval to fly transatlantic routes out of London, but that was not given,” said Andrew Orchard, a regional airlines analyst at CIMB Research.
Singapore Airlines is also focusing on its key areas where it is facing tough competition from budget airlines.
Aviation consultant Hamlin said that a Delta-Virgin deal if happens, would be beneficial for both the airlines. “London obviously is the premier market and Heathrow is by and large the market leader. It’s the lynchpin transatlantic market in terms of size and revenue, particularly premium traffic revenue,” Hamlin said.