Alaska Air Group to Purchase Virgin America for $2.6 Billion

Merge combines top-ten American carriers while increasing Alaska’s reach on the West Coast.

Another travel industry bidding war has come to an end, after a West Coast carrier beat out a New York airline for Virgin America. In a press release, Alaska Air Group, the parent company of Alaska Airlines, announced the acquisition of the San Francisco-based airline in a deal valued at around $4 billion.

Under the terms of the deal, Alaska Air Group will outright purchase Virgin America for $57 per share in cash, for a purchase price of $2.6 billion. The remaining value comes from the airline’s capitalized aircraft operating leases and inheritance of Virgin America’s debt.

Although the merger gives the combined airline a bigger presence at major East Coast hubs in New York and Washington, D.C., Alaska’s primary focus was on improving operations on the West Coast. Virgin America hubs are located at Los Angeles International Airport (LAX) and San Francisco International Airport (SFO), strengthening Alaska’s service in the business travel corridor between Southern California, Silicon Valley and the Pacific Northwest.

“Together we will continue to deliver what customers tell us they want: low fares, unmatched reliability and outstanding customer service,” Brad Tilden, chairman and chief executive of Alaska Air Group, said in the press release. “With our expanded network and strong presence in California, we’ll offer customers more attractive flight options for nonstop travel.”

The announcement ends the speculation about the future of Virgin America, with as many as four carriers thrown around as suitors for the airline. Although the primary candidates to purchase Virgin America were Alaska and JetBlue, Bloomberg reports Delta Air Lines was one of the parties expressing initial interest in the San Francisco-based airline. U.S. Global Jets ETF chief executive Frank Holmes speculated to trading news website Benzinga Southwest Airlines may have also been a potential buyer.

Although the purchase has been approved by both airlines’ board of directors, the sale must also be approved by Virgin America shareholders. The deal is expected to complete by the end of the year. Once complete, Alaska Airlines is anticipated to be the fifth largest airline in the United States.

[Photo: AP]