Virgin America receives takeover offers: source

Mon Mar 28, 2016 7:25pm EDT
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(Reuters) - Virgin America Inc VA.O has received takeover bids from JetBlue Airways Corp (JBLU.O: Quote) and Alaska Air Group Inc (ALK.N: Quote) as the U.S. budget airline backed by British billionaire Richard Branson explores a sale, a person familiar with the matter said Monday.

Asian airlines have also expressed interest in buying Virgin America, although they would have to partner with a U.S. bidder under foreign ownership rules governing U.S. airlines.

The source asked not to be identified because the sale process is confidential.

JetBlue, Alaska Air and Burlingame, California-based Virgin America declined to comment.

In the past year, Virgin America has faced steep declines in unit revenue, or sales relative to flight capacity, as bigger rivals have added seats to gain share and take advantage of lower fuel costs that make it cheaper to operate flights. A tie-up with another airline could give Virgin America more flights that would help it compete.

Analysts said a deal could make sense particularly for New York-based JetBlue, which has room to grow on the U.S. West Coast. Both carriers fly the same type of aircraft, which means JetBlue would not need to train pilots or maintenance crew on how to operate Virgin America's planes.

Buyers would benefit from Virgin America's corporate accounts with major technology companies such as Facebook Inc (FB.O: Quote) and Alphabet Inc (GOOGL.O: Quote), Sterne Agee CRT analyst Adam Hackel said.

A buyer would have to assume Virgin America's aircraft leases, likely at above market rates, however, and might have to hike its pilots' lower-than-average wages, JPMorgan analyst Jamie Baker said in a research note last week after news of a potential sale broke.

Mega-mergers among larger U.S. airlines in the past decade have reduced the industry to four top players: American (AAL.O: Quote), Delta (DAL.N: Quote), United (UAL.N: Quote) and Southwest (LUV.N: Quote), which control more than 80 percent of the market.   Continued...

File photo of Virgin America flights landing in San Francisco, California, August 8, 2007. REUTERS/John Decker Virgin America/Pool