Alaska Virgin America Purchase – $2.5 Billion
Well, according to the Wall Street Journal, Alaska Airlines has won the airline prize of the moment. In a supposed bidding frenzy, they took Virgin America from JetBlue at a price of around $2.5 billion. That is only about double the value of the airline about a month ago. Wow!
Why did Alaska win? Well the Wall Street Journal quoting an anonymous source says:
Bidding between Alaska Airlines’ parent and JetBlue was feverish, this person said, with the price continuing to rise. Alaska prevailed in part because of its clean balance sheet, which will allow it to more easily borrow funds for the acquisition, the person said.
A person familiar with the jousting said it was “a fierce back and forth between the two sides, with multiple bids for a number of days.” But ultimately, JetBlue “put the pencil down” because the price had gotten too high.
Too high? I would say. Double is probably a bit high especially considering the challenges Alaska will face when trying to integrate Virgin into their company. View from the Wing lays out those challenges fairly well. Among them is the difficulty of integrating an all Airbus fleet into an all mainline Boeing fleet. The challenges will be many.
One friend (who is most likely not in the know) has suggested that perhaps Alaska will operate Virgin as a standalone airline. I don’t see that as outside the realm of possibility at least for the short term. In the mean time this deal does help Alaska strengthen their West Coast presence and they also gain some slots at airports in other areas. The Virgin hub in San Francisco is definitely a prize as well.
Did They Overpay?
Certainly Alaska did overpay according to the market capitalization of Virgin America, but is that the whole story? If this purchase is completed, they eliminated a West Coast competitor, prevented another competitor from expanding further West and moved into the position of 5th largest carrier in the country. I’m still not convinced that they didn’t overpay, but they do gain.
Tomorrow will be an interesting day as we should find out if this is actually happening. What do you think? Is this a good or bad move for Alaska?