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Branson’s Virgin Atlantic Attracts Merger Enquiries

Virgin Atlantic Gets ‘Number’ of Queries About Merger
Virgin Atlantic Airways Ltd., the Richard Branson-controlled carrier that signaled interest in a merger six months ago, said it has received “a number of lines of enquiry” after hiring Deutsche Bank AG as an adviser. Photographer: Simon Dawson/Bloomberg

Dec. 15 (Bloomberg) -- Richard Branson’s Virgin Atlantic Airways Ltd., which signaled it was open to a merger six months ago, said it has attracted interest from several parties.

Closely held Virgin confirmed the contacts after Sky News said Delta Air Lines Inc. was among carriers exploring a tie-up. The U.K. company, in which Branson has a 51 percent stake, hired Deutsche Bank AG to explore options after competitors used mergers to bulk up and trans-Atlantic rivals British Airways Plc and AMR Corp.’s American Airlines won approval to deepen ties.

With non-European investment in the region’s carriers limited to minority holdings, any sale will likely hinge on whether Singapore Airlines Ltd. is prepared to sell all or part of a 49 percent stake acquired in 1999, said Laurie Price, director of aviation strategy at Mott MacDonald Group Ltd.

“Virgin can’t do anything without Singapore’s agreement,” Price said. “And having survived the worst slump in at least 40 years, why would you pull out when the market is on the turn? I would expect the value to be greater in a year or 18 months.”

Greg Dawson, a Virgin spokesman, said in a statement late yesterday that the carrier has received “a number of lines of enquiry,” though it’s “far too early” to give details and Deutsche Bank’s work on the plan will take a number of months.

Free Agent

Virgin, which flies to 30 cities including 10 in the U.S., according to its website, isn’t in one of the three big global groups that help carriers cooperate through code-share deals and marketing pacts, though Singapore Airlines is a leading member of the Star Alliance, a rival to Atlanta-based Delta’s SkyTeam.

“Virgin Atlantic has got to be in some sort of alliance to get critical marketing mass,” said Andrew Miller, chief executive officer of CAPA Consulting LLC, which advises airlines. “In the new world where airlines are struggling to survive, doing it alone is going to be difficult”

Airline earnings may drop 40 percent next year on slower economic growth, higher fuel costs and state austerity measures, the International Air Transport Association said yesterday.

Gulf Interest

In addition to Delta, other interest in Virgin has come from Gulf carriers, Sky News said in its report, without identifying specific airlines. Like the U.K. company, Mideast operators such as Dubai-based Emirates aren’t in alliances.

John Strickland, director of the JLS aviation consultancy, said such a tie-up was less likely than one in the U.S.

“I’m skeptical that a Middle Eastern company would be interested,” Strickland said. “They tend to plow their own furrow, and they don’t gain further access to the world because they already have that.”

Emirates, the world’s largest international carrier, said it wasn’t in talks with Virgin. Qatar Airways Ltd. declined to comment and Etihad Airways of Abu Dhabi couldn’t be reached.

“It’s nothing to do with us,” Emirates President Tim Clark said in a telephone interview. “Virgin must be in a state of limbo at the moment with all the consolidation that’s happening in Europe. They must be worried about what’s going on.”

A deal with Virgin would help Delta’s SkyTeam bolster operations at London’s Heathrow airport, the busiest in Europe. The group doesn’t have a U.K. member, whereas British Airways is in Oneworld and Star includes Deutsche Lufthansa AG unit BMI, the second-largest carrier at Heathrow.

“As a matter of policy, we don’t comment on industry rumor or speculation about potential partnerships,” Delta spokeswoman Betsy Talton said.

Lufthansa spokesman Andreas Bartels declined to comment on whether the airline is considering investing in Virgin.

Singapore Stake

Virgin might be open to consolidation, CEO Steve Ridgway said in a June interview with Bloomberg Television. There is potential for Virgin to “grow to become part of a bigger group,” he said.

Ridgway said then that Singapore Air’s holding could be offered for sale as the Asian carrier modifies its strategy to reflect the expansion of the Indian and Chinese markets. The world’s second-largest carrier by market value has repeatedly said it’s exploring options regarding the stake. Spokesman Nicholas Ionides today referred all questions to Virgin.

British Airways, American and Iberia Lineas Aereas de Espana SA in October began a trans-Atlantic alliance by sharing booking codes on more than 2,700 services. Virgin had campaigned against regulatory approval for the tie-up. BA and Madrid-based Iberia are also set to complete a merger next month.

Virgin Atlantic operates 35 twin-aisle planes, according to data provided by London-based Ascend Worldwide Ltd.

Ten Airbus SAS A330s will join the fleet from early next year, according to the airline’s website. It has also ordered six Airbus A380 superjumbos for delivery from 2015 and 15 Boeing Co. 787 Dreamliners that will start operations in 2014.

To contact the reporters on this story: Steven Rothwell in London at srothwell@bloomberg.net; Chan Sue Ling in Singapore slchan@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Neil Denslow at ndenslow@bloomberg.net

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