Two of the world’s biggest airlines have joined forces to examine a bid for Sir Richard Branson’s Virgin Atlantic.
Air France-KLM and America’s Delta, both members of the SkyTeam airline alliance, have linked up to try and tempt Branson into joining their transatlantic joint venture, formed in May 2009. It allows partners to share revenues and costs and to co-ordinate flight schedules. The consortium, which has appointed Goldman Sachs as its advisor, is likely to go head to head with Etihad, owned by the ruling family of Abu Dhabi. Etihad has drafted in Bank of America Merrill Lynch to advise it.
Branson hired Deutsche Bank in November to examine the options for his 51% stake in the airline, which he founded in 1984. The remaining 49% is owned by Singapore Airlines, which has previously indicated that it would sell at the right price.
The Virgin founder was forced to review his airline’s future after bitter rival British Airways was last year given regulatory clearance to form its own transatlantic alliance with American Airlines and Iberia, making it even tougher for Virgin to compete at Heathrow.
Branson complained aggresively against the tie-up, saying it would create a “monster monopoly” that would be bad for passengers because it would concentrate pricing power in the hands of fewer airlines. Industry sources said teh increased competition across the Atlantic meant Branson would be either forced to bring in a deep pocketed investor or sell out altogether.
It is not the first time Delta and Air France have joined together to run the rule over a potential target. Last year the SkyTeam partners were in talks about investing £1.3 billion in Japan Airlines, which was in dire financial straits.
Japan eventually spurned their approach, deciding to end talks with Delta and remain in the Oneworld airline alliance to preserve its relationship with American Airlines and British Airways.
Airlines have been huddling together to ride out the turbulence of the worst economic downturn since the Great Depression.
Delta merged with Northwest Airlines in 2008 to create the world’s biggest airline, with 786 aircraft. BA has also recently completed its long-running merger with Spanish partner Iberia to create the International Airlines Group.
Meanwhile, Lufthansa, the German flag carrier, has been on an unprecedented spending spree over the last few years, snapping up BMI British Midland, Brussels, Swiss and Austrian Airlines.
James Hogan, chief executive officer of Etihad, has decided to get in on the action and has written to Deutsche to register his interest in Virgin Atlantic.
Virgin said: “Virgin Atlantic is a strong independent business with a good growth position at both London Heathrow and Gatwick, so we are not surprised there is interest in us.”
Etihad refused to expand further on the move, saying only that it regularly talked to many airlines and other businesses about “issues and opportunities”.
Scott Snowden
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