Alaska Air to buy Virgin America for US$2.6 billion

NEW YORK (REUTERS) - Alaska Air Group said on Monday it had agreed to buy Virgin America Inc for US$2.6 billion (S$3.5 billion) to expand its flights on the United States West Coast.

Alaska Air said in a news release that the merged airline will become the fifth largest in the United States and will help it compete against larger rivals for lucrative business and international travelers visiting San Francisco and Los Angeles as well as Seattle, where the company is based.

The acquisition will herald the first U.S. commercial airline merger since US Airways and American Airlines combined in 2013 to form the world's largest carrier.

Alaska's offer of US$57 per share in cash represents a premium of about 47 per cent to Virgin's Friday's close. Including Virgin America's debt and aircraft lease obligations, the transaction value amounts to about US$4 billion, according to the release.

The deal will generate US$225 million in annual benefit once the companies are fully merged, while one-time integration costs are expected to be between US$300 million and US$350 million, Alaska Air said.