There's been some drama related to Alaska's proposed acquisition of Virgin America, but many industry insiders still expect the deal to get done. And Alaska executives remain publicly confident that they will get their prize. The big question is when.
Alaska Airlines remains confident it can close its proposed acquisition of Virgin America, but the carrier’s CEO on Thursday acknowledged the deal has been delayed as U.S. regulators take a close look at whether it might harm consumers.
“We were hoping to get this done a couple of weeks ago, and we are obviously not there quite yet,” Alaska CEO Brad Tilden said on the carrier’s third quarter earnings call. “The scope of the issues that remain with the Justice Department is manageable. But they are important matters, and we want to take the time that is necessary to work through them.”
Tilden did not say exactly what was holding up the deal. Initially, Alaska had promised the Justice Department it would not close its acquisition until at least Sept. 30, giving the government time to decide how to proceed. Then, the parties agreed to extend that deadline until Oct. 17. But they still need more time, Tilden said.
The Justice Department could file an anti-trust lawsuit to try to block the deal, as it did in in August 2013 with the US Airways and American Airlines merger, on the grounds it is anti-competitive. More likely, though, the government would not file suit and instead ask for concessions from Virgin America and Alaska before acquiescing to the deal.
“It’s hard to predict the exact timing for when we will wrap up since there are two parties involved,” Tilden said. “There’s a process in place, and we’re working through that process, and we are respectful of that process. Our hope is that we will have anti-trust clearance soon. We continue to be very confident that the deal will get done.”
Concessions may be needed
Generally, the Justice Department looks favorably on concessions that stimulate competition at popular airports. Alaska might, for example, be asked to give up gates in San Francisco, Los Angeles, or Dallas Love Field. Or it might be asked to give up landing rights at slot-controlled airports on the East Coast, though the combined Alaska/Virgin America entity would still be far smaller in New York and Washington, D.C. than its four larger competitors.
There is recent precedence for concessions. In November 2013, the Justice Department dropped its suit against US Airways and American after American agreed to give up two gates at Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International and Miami International. American also gave up slots at New York LaGuardia and Washington Reagan, and they went to low-cost competition.
Analyst Jamie Baker of J.P. Morgan asked if there was a scenario under which Alaska might walk away from the deal, because the Justice Department asked for too many concessions. But in his answer, Tilden demurred.
“We have always run this business for the long term,” he said. “We think about what is going to be good for our customers, for our employees for the owners of the business. That’s the mindset we are taking as we have this conversation with the Justice Department.”
“We are pushing. There are some things that we feel are important for our future success and our ability to do good things for customers. That’s what is motivating us here. We do have a pretty strong internal compass about what has worked for us and will work for us in the future.”
As a stand-alone airline, Alaska had a profitable third quarter, reporting $256 million in net income on total operating revenues of $1.57 billion.
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Photo credit: Alaska Airlines had hoped it would have Justice Department clearance by now for its proposed acquisition of Virgin America. But the deal has been delayed. Alaska Airlines / Alaska Airlines