NEW YORK • Alaska Air Group said yesterday it had agreed to buy Richard Branson-backed Virgin America 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 US and will help it compete against larger rivals for lucrative business and international travellers visiting San Francisco and Los Angeles as well as Seattle, where the company is based.
The combination will also enhance Alaska's access to slot-constrained East Coast hubs, including John F. Kennedy International Airport and LaGuardia in New York, and Ronald Reagan Washington National.
The acquisition will herald the first US commercial airline merger since US Airways and American Airlines combined in 2013 to form the world's largest carrier.
A definitive merger of the airlines had been unanimously approved by the boards of both companies, it said in a statement.
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.
Virgin America's market value was US$1.37 billion on March 22, a day before Bloomberg News reported that the California-based company was reaching out to potential buyers.
The merger extends a consolidation wave that began in 2005 and eventually swept up five of the 10 biggest US carriers. Four operators - American Airlines Group, United Continental Holdings, Delta Air Line and Southwest Airlines - now control 80 per cent of the United States market.
While a combined Alaska-Virgin America would not affect the size rankings at the top of the US industry, the new carrier would surpass JetBlue for fifth place, based on passenger traffic.
Alaska is now No. 6, and Virgin America is No. 12, according to the US Bureau of Transportation Statistics. American is No. 1.
Virgin America began flying in 2007, letting Mr Branson achieve his goal of expanding the Virgin brand into the world's largest air-travel market. Getting there was not easy.
Concerned that Mr Branson's status as a British citizen would give a foreigner too much say in a US airline, regulators required Virgin Group to give up a board seat, put its stake under a trustee and name a new chief executive officer before letting Virgin America begin flights.