Sir Richard Branson could sell his controlling stake in Virgin Atlantic after rival Delta Airlines made a bid for nearly half the business. Delta, the biggest US airline, is understood to have offered to buy Singapore Airlines’ 49% stake in Virgin Atlantic which could, in turn, lead to a bid to take a majority stake away from Branson.
Sources close to the negotiations confirmed weekend reports that Delta has approached Singapore over its stake, but cautioned that there is no certainty that it would bid for control of Virgin Atlantic, which Branson – who owns a 51% stake – launched in 1984.
Delta’s move comes as Singapore aims to draw attention away from the crowded European market and concentrate on the rapidly expanding budget airline industry in south east Asia and Australia.
However, if the Delta bid is successful, any offer to Branson would need Delta to team up with its European partners at Air France-KLM because of strict EU rules which say any operator within its boundaries must be controlled by a European-based business.
Branson has made no secret of his desire that Virgin should join one of the three big airline alliances to keep Virgin Atlantic competitive. However, it is unclear whether he would be willing to relinquish his majority stake, which he has held since founding the airline.
During a recent trip to India he said that airline economies would push Virgin Atlantic to become “part of a bigger alliance in the next few months”.
If Delta became his Virgin Atlantic partner, it would probably join the SkyTeam alliance of 19 airlines, including Delta, KLM and Air France. The other two alliances are Star (28 airlines, including Singapore, Air Canada and South African Airways) and OneWorld, which covers British Airways, American Airlines and 10 others.
Delta is thought to be keen to increase its presence in the lucrative London to New York transatlantic route. It is the third biggest operator on the route behind British Airways and Virgin Atlantic.
Singapore Airlines bought its 49% stake in Virgin Atlantic in 1999 for £600m, but in October it bought a 10% stake in Branson’s Virgin Australia carrier for $108.5m (£71m). The deal signalled the company’s intent to focus on the Far East, giving it the company’s first direct stake in Australia’s aviation market, where Virgin is the second biggest airline after Qantas.
Scott, Singapore’s low-cost airline, now accounts for one in four of all Asia Pacific flights and follows cuts by the airline to its long-haul flights between the Far East and North America.
Branson has been considering Virgin’s future for several years and nearly signed a deal with Air France-KLM in February 2011, having appointed Deutsche Bank to look into possible offers. He was particularly concerned by a ruling by US authorities that allowed British Airways and American Airlines to run their transatlantic businesses jointly.
In 2011 he said: “We realised for the long-term stability of Virgin Atlantic we needed to look at an alliance partner, and whether it is purely an alliance or more than an alliance we’re completely undecided. Most of the people we talked to are keen to have Virgin as part of their alliance. My preference would be to keep control of the airline.” With the BA-AA deal passed, any link-up with Delta is unlikely to face many regulatory hurdles.
A spokesman for Singapore Airlines said: “We review our investments regularly, but no decision has been made about a divestment of our shareholding in Virgin Atlantic.”
Virgin Atlantic said: “We are always talking to many airlines on a number of different matters but we never comment on the details of these discussions”
Delta Airlines declined to comment.
Branson’s sky plans
Sir Richard Branson formed Virgin Atlantic with US lawyer Randolph Fields more than 28 years ago, launching their maiden flight from Gatwick to Newark on 22 June 1984. Billed as a budget airline, it aimed to compete on the lucrative transatlantic market, still dominated by British Airways.
The pair fell out within months, causing Branson to turn to the City for more funds. Fields left, reducing his stake to 25%. He was eventually bought out by his former partner.
The company received a boost to its coffers from Branson when he sold Virgin Records in 1992 for £510m, but by 1999, with rival airlines forming worldwide alliances, Branson sold a 49% stake to Singapore Airlines for £600m.
Today Virgin has 44 planes. It flew 5.3 million passengers in 2011. It has six Airbus A380 aircraft on order.