Alaska Air to Buy Virgin America for $2.6 Billion in Cash

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In a deal that was talked about late last week and through the weekend, Alaska Air Group Inc. (NYSE: ALK) has agreed to acquire Virgin America Inc. (NASDAQ: VA) for $2 billion in cash and assumption of about $2 billion existing Virgin debt and capitalized leases. The merger is expected to close by January 1, 2017.

The combined airline will operate five hubs: Seattle, Los Angeles, Anchorage and Portland, which are current Alaska Air hubs, and San Francisco, currently a Virgin America hub. The airline’s fleet will include approximately 280 aircraft. Alaska Air’s fleet includes 153 Boeing 737s while Virgin America counts 60 Airbus A319 and A320 jets in its fleet. All the planes are single-aisle mode.

The combined company expects to achieve cost savings of $225 million annually at full integration. Integration costs are expected to total $300 million to $350 million. The combined airline is projected to have annual revenues of more than $7 billion. Alaska Air expects the transaction to be accretive to adjusted earnings per share, excluding integration costs, in the first full year.

While the announcement is not perfectly clear, it appears that both brands will continue to operate under their own names, at least initially:

Alaska Airlines and Virgin America are two of the most respected aviation brands in the United States (and globally in the case of Virgin). While the companies apply for a single operating certificate, Alaska will maintain its new, refreshed brand and will work closely with Virgin America to learn more about the award-winning Virgin America brand and customer experience. And over the next few months Alaska will explore with the Virgin Group how the Virgin America brand could continue to serve a role in driving customer acquisition and loyalty to get the best from both brands.

Virgin America shares popped more than 40% to $54.70 early Monday. The stock’s prior 52-week range was $26.30 to $39.73.

Alaska Air’s shares traded down more than 4% Monday morning, at $78.11 in a 52-week range of $58.15 to $87.17.