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Virgin deal should end business community concerns about Delta designs on Alaska

"We're viewing this as a combination that will make Alaska stronger and better positioned to remain a successful, independent, Seattle-based company for decades to come."

by Joe Sprague, Senior Vice PresidentCommunications & External Relations

There's no way of knowing the extent to which the shadow of Delta Airlines hung over Alaska Air Group's decision last fall to connect with Virgin America about a possible takeover.

But regardless, a local business community troubled for months that it needed to figure out how to help Alaska Airlines ward off what was perceived as a takeover effort by Delta Airlines can stop worrying. Alaska saved itself.

That's the underlying fact about the announcement last week that Alaska has agreed to buy Virgin America for $2.6 billion cash, with assumed debt, leases and other costs bringing the total to about $4 billion. That's a figure viewed by some experts as too much -- a huge premium that Alaska had to pay on Virgin's market valuation to beat out JetBlue to land the deal.

But it depends on what a company like Alaska is buying. And in Alaska's case, it's a twofer, or maybe a threefer, as it dramatically expands its California presence and keeps Jet Blue from acquiring Virgin's lucrative California routes. But maybe most importantly, it pretty much ends the concern about a Delta takeover strategy.

Concern over any Delta designs on Alaska should pass, if for no other reason than that the Justice Department wouldn't be likely to allow one of the Big Four carriers to buy number five, which is where the Virgin deal, once approved, would place Alaska.

That Justice Department point was offered by Joseph Shocken, president of Seattle's Broadmark Capital, when I asked him his thoughts after the Virgin announcement, since Shocken was perhaps the most outspoken business advocate of a "support Alaska" strategy over the past 18 months.

It was Shocken, whose business activity at his successful boutique merchant bank has made him somewhat of an expert on how mergers and acquisitions play out, who first reached out to me about "the business community needs to take sides and do so visibly against Delta."

I was receptive to Shocken's argument, and did several columns commencing with one that said Delta had turned from partner, which had been its relationship with Alaska, to predator.

The reaction of others I met with in the business community, not just in Seattle but across the state, after the first column indicated to me that Shocken wasn't merely crying wolf, particularly after a member of Alaska's board had confided "we're really worried."

So was the Delta issue a consideration for Alaska in its decision to approach Virgin America last fall about a sale?

Asked about that, Joe Sprague, Senior Vice PresidentCommunications & External Relations, said "We're viewing this as a combination that will make Alaska stronger and better positioned to remain a successful, independent, Seattle-based company for decades to come."

The deal still needs to pass through regulatory approval and as part of its information pack Alaska Airlines issued a timeline with the deal set to close January 1, 2017, and full integration by the first quarter of 2018.

The merge is likely to attract the scrutiny of Justice Department officials already pursuing allegations that America's biggest airlines have colluded to keep airfares high.

And since the takeover will mean California no longer will have an airline based in the state, which served as home to a variety of carriers over the decades, there may well be an effort to convince regulators it's not good for consumers.

For those who like a chuckle with their politics, it would amusing if Alaska-Virgin provided California's dynamic female Democratic duo in the U.S, Senate reason to clash for the first time with their Washington Senate Democrat counterparts.

But antitrust experts suggest the takeover of Virgin by Alaska probably will be seen by those federal regulators as a union that will better equip Alaska to compete against larger rivals.

And if the concern of Shocken and others who have watched the shrinkage of the airline industry by takeovers play out were legitimate, Alaska was destined to lose a battle with Delta so the prospect of an erosion of discount fares was bound to be an outcome, whether because if Alaska's growth or its decline.

The final piece of the Delta puzzle that needs to play out is the possible restoration of a Delta-Alaska partnership arrangement. The effort to achieve that is certainly a possibility with the retirement of Richard Anderson from the CEO role, since he was the key protagonist in the obvious beat-down-Alaska strategy. But since Anderson remains as executive chairman of the Delta board, he may still influence a Delta move to restore relations with Alaska, returning to partner instead of predator.

But the fact is any thoughts about that are not even on Alaska's agenda right now. 

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