Alaska Air Group is buying Virgin America in a deal worth more than $US2 billion ($A2.61 billion), creating a powerhouse airline with an expanded West Coast presence.
Alaska Air will pay $US57 in cash per Virgin share. That’s a 47 per cent premium to its Friday closing price of $US38.90.
The companies put the transaction’s value at about $US4 billion, including debt and capitalised aircraft operating leases.
Alaska Air said on Monday the deal will expand its route network to include 1,200 daily departures.
The combined business will be based in Seattle.
Both companies’ boards have approved the transaction, which is expected to close no later than January 2, 2017. It still needs approval from Virgin America shareholders.
Virgin America’s stock jumped more than 33 per cent in premarket trading.
Alaska Air is currently the sixth-largest US carrier by traffic and serves 90 destinations in the US, Canada and Mexico. This deal gives them a bigger presence in San Francisco and Los Angeles, two coveted gates at Dallas Love Field, and more transcontinental service.
The deal marks a shift in the size of consolidations within the airline industry. For more than a decade consolidation swept through the major players, reducing the largest nine carriers in 2005 to four airlines by the end of 2013.
The Alaska Air buyout of Virgin America indicates that consolidation has shifted to smaller players.
Virgin America got off the ground with support from minority owner Richard Branson and began flying in 2007.
It went public in 2014 and while it has experienced growth in Dallas and added new service to Hawaii and Denver, the airline was having trouble getting enough takeoff and landing slots at busy New York airports. Its limited size and schedule made it difficult for the company to compete with bigger carriers for lucrative business travellers.
