Gulf carriers mull Virgin Atlantic merger deal – report

Branson’s airline admits number of enquiries as it looks to bulk up in face of rising competition
Gulf carriers mull Virgin Atlantic merger deal – report
Virgin, in which Branson has a 51 percent stake, is keen to bulk up in the wake of increasing competition from super-airlines
By Bloomberg
Wed 15 Dec 2010 04:21 PM

Richard Branson’s Virgin Atlantic Airways, which signalled interest in a merger six months ago, said it has attracted approaches from several parties.

“We’ve received a number of lines of enquiry,” Virgin spokesman Greg Dawson said in a statement late yesterday, adding that adviser Deutsche Bank AG’s work on the plan will take a number of months and that it’s “far too early” to give details.

Closely-held Virgin confirmed the contacts after Sky News said Delta Air Lines was among carriers exploring a tie-up.

In addition to Atlanta-based Delta, other interest has come from Gulf carriers, Sky News said in its report, without identifying specific airlines.

Dubai-based carrier Emirates, however, the region's largest airline, said it is not involved in takeover talks with Virgin.

“It’s nothing to do with us,” Emirates President Tim Clark said in a telephone interview. “Virgin must be in a state of limbo at the moment with all the consolidation that’s happening in Europe. They must be worried about what’s going on there as it’s a small player.”

John Strickland, director of the JLS aviation consultancy, said such a Gulf tie-up was less likely than one in the US.

“I’m skeptical that a Middle Eastern company would be interested,” Strickland said. “They tend to plow their own furrow, and they don’t gain further access to the world because they already have that.”

Virgin, in which Branson has a 51 percent stake, hired Deutsche Bank after competitors used mergers to bulk up and trans-Atlantic rivals British Airways and AMR’s American Airlines won approval to deepen ties.

“Virgin Atlantic has got to be in some sort of alliance to get critical marketing mass,” said Andrew Miller, chief executive officer of CAPA Consulting, which advises airlines. “In the new world where airlines are struggling to survive, doing it alone is going to be difficult”

A deal with Virgin would help Delta’s SkyTeam alliance bolster operations at London’s Heathrow airport, the busiest in Europe. The group doesn’t have a UK member, whereas British Airways is in Oneworld and the Star Alliance includes Deutsche Lufthansa AG unit BMI, the second-largest carrier at Heathrow.

“As a matter of policy, we don’t comment on industry rumour or speculation about potential partnerships,” said Betsy Talton, a spokeswoman for Delta.

Virgin might be open to consolidation, CEO Steve Ridgway said in a June interview with Bloomberg Television. There is potential for Virgin to “grow to become part of a bigger group,” he said.

Talks on a merger could be complicated by Singapore Airlines’ 49 percent stake in Virgin, which Branson sold for £600m ($946m) in 1999, and by regulations hindering cross-continental ownership, CAPA’s Miller said.

“If you don’t have effective control, what can you get out of it?” he said. “Until laws on ownership change, airlines will continue to use alliances and cooperative agreements to expand.”

Virgin Atlantic operates 35 twin-aisle planes, according to data provided by London-based Ascend Worldwide Ltd. Ten Airbus SAS A330s will join the fleet from early next year, according to the airline’s website. Virgin has also ordered six Airbus A380 superjumbos for delivery from 2015 and 15 Boeing Co. 787 Dreamliners that will start operations beginning in 2014.


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