Alaska Air Group has reached an agreement with the US Department of Justice (DOJ) on the timing of the antitrust review of its proposed acquisition of Virgin America and expects the merger to close in the 2016 fourth quarter, according to Alaska CEO Brad Tilden.
Speaking to analysts and reporters to discuss Seattle-based Alaska’s second-quarter earnings, Tilden expressed confidence that the $4 billion deal to merge Alaska Airlines and San Francisco-based Virgin America will be finalized in the fourth quarter, allowing integration activities to begin. “The integration management office is up and running,” he said.
Virgin America will become a subsidiary of Alaska Air Group until Alaska Airlines and Virgin America receive a single operating certificate from FAA, which Alaska executives expect to happen by early 2018.
Tilden said the Alaska Airlines brand will definitely remain post-merger, but no decision has been made on the future of the Virgin America brand. Alaska is in the midst ofconducting “in depth market research” on the Virgin America brand, particularly in terms of how California passengers view the brand, he said.
“We’ve thought about this quite a lot,” Tilden said. “What we’re doing is looking at a lot of data. We’re looking at what’s attractive to Virgin America customers in California. I think it’s best for us to do this work in quiet.” He said a decision on the future of the Virgin America brand is expected by early 2017.
In response to an analyst’s question, Tilden said Alaska has had no second thoughts about the merger even as the unit revenue environment continues to be weak for US airlines. Even as Alaska’s overall revenue rose 4% year-over-year in the second quarter, its mainline PRASM was down 7.5%.
Tilden said, “This business is a better business than it was five years ago … Virgin gives us California. We try to not think in the short term about what’s happening with PRASM and instead on five, 10 years down the line and the benefits this merger will bring.”
Alaska CFO Brandon Pedersen noted that Alaska has already secured financing for the Virgin America transaction at a low all-in interest rate. Pressed for specifics on the interest rate figure, he said it would be below 3%. Pedersen said there was “strong interest” from the lending community to finance the merger.
Aaron Karp email@example.com