By Soyoung Kim and Charmian Kok
NEW YORK/SINGAPORE Dec 3 Singapore Airlines
said on Monday it was in talks with interested parties
to sell its 49 percent stake in British carrier Virgin Atlantic,
with sources revealing that Delta Air Lines Inc was
among the potential suitors.
Delta, the second-largest U.S. airline by operating revenue
after United Continental Holdings, wants to gain access
to Virgin's landing rights at London's Heathrow airport,
according to two people familiar with the matter.
Delta has been looking to acquire a Virgin stake for more
than two years but previous talks broke down over price and
other issues, and there is no guarantee that its recent
discussions would result in a pact, the people said.
Singapore Airlines said in a brief statement it was in talks
with interested parties but did not name them. It also cautioned
that the discussions might not result in a deal.
The European Union requires that EU carriers be under
European control, meaning Delta would need to involve an EU
airline as a partner if it wanted majority control of Virgin.
Delta has been considering ways to partner with Air
France-KLM, which could also take a stake in Virgin,
one of the people said.
Virgin's British founder, Richard Branson, owns 51 percent
of the airline. If Air France-KLM were to buy a small percentage
of Branson's stake, then Virgin could continue to be European
Delta has made clear that it wants to expand at Heathrow, a
lucrative hub for corporate passengers where landing slots are
generally hard to acquire. Virgin is the second-largest carrier
at Heathrow after IAG's British Airways.
Delta's SkyTeam global alliance, which includes Air France
and 18 other airlines, trails its oneworld and Star Alliance
counterparts in slot access at Heathrow.
"Delta now finds itself going up against the combination of
American Airlines and British Airways," said George Hamlin, an
aviation consultant in Fairfax, Virginia, referring to the two
anchor members of the oneworld global alliance.
"British Airways brings along a feed from other destinations
- both Europe and intercontinental - at Heathrow. Delta is
basically a dead-end at this point."
VIRGIN SALE OPTION
Singapore Airlines (SIA) bought 49 percent of Virgin for 600
million pounds ($962 million) in 1999, but has been open to
selling its stake in the loss-making carrier since at least
mid-2011 when a price of $500-$600 million was being mooted in
markets, a banking source familiar with the talks said at the
"When SIA bought Virgin, they expected to be given some
approval to fly transatlantic routes out of London, but that was
not given," said Andrew Orchard, a regional airlines analyst at
At the same time, Singapore Airlines has been refocusing on
its key markets where it is under pressure from budget airlines,
launching its own budget carrier, Scoot, to ply Asian
middle-distance routes and bolstering its Asian regional
Virgin, like other European carriers, has been battered by
rising fuel prices and the euro zone crisis, and posted a loss
of around 80 million pounds in its last full year.
"If Virgin is valued on an earnings basis, then it's hard to
see SIA getting a good price. On the other hand, SIA is not
desperate for cash and they probably won't sell it at a fire
sale price," said CIMB's Orchard.
Branson, who set up Virgin Atlantic in 1984, has been
weighing the airline's future for years and two years ago
appointed Deutsche Bank to examine offers.
"We are always talking to many airlines on a number of
different matters but we never comment on the details of these
discussions," a Virgin Atlantic spokeswoman said on Sunday.
Delta declined to comment. Air France-KLM was not
immediately available for comment outside regular business
Heathrow, Europe's busiest airport, is operating at close to
full capacity after Britain's coalition government blocked its
expansion in 2010.
Virgin lost out in the battle to take over smaller UK
carrier bmi last year to IAG, giving the owner of British
Airways and Iberia more than 50 percent of the takeoff and
landing slots at Heathrow.
However in November, Virgin won all of the Heathrow takeoff
and landing slots that British Airways was forced to give up
after the acquisition of bmi.
Virgin, which is hunting for a new chief executive after
Steve Ridgway announced he would retire early next year, is not
a member of a global airline alliance.
Aviation consultant Hamlin said a tie-up with Delta could
give Virgin access to hundreds of markets on a one-stop
connecting basis in the United States. For Delta, such a deal
would help plug a weakness in its global network versus key
competitors and make it a strong player at Heathrow.
"London obviously is the premier market and Heathrow is by
and large the market leader. It's the lynchpin transatlantic
market in terms of size and revenue, particularly premium
traffic revenue," Hamlin said.