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Singapore Air holds Virgin talks; Delta said to seek stake

Published December 2, 2012 10:37 pm

This is an archived article that was published on sltrib.com in 2012, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Singapore Airlines Ltd. announced it's in talks about selling its 49 percent stake in Virgin Atlantic Ltd. after people familiar with the matter said that Delta Air Lines Inc. is discussing buying shares.

The negotiations with "interested parties" may not result in a transaction, Singapore Air said in a statement today. Delta is discussing buying part or all of the stake, said the people who asked not to be identified as the matter is private. Delta's partner Air-France KLM might also take a stake, they said. Billionaire Richard Branson controls 51 percent of Virgin.

Singapore Air may exit the U.K. carrier after 13 years as Virgin struggles with rising fuel prices and increased competition from British Airways at London's Heathrow Airport. For Atlanta-based Delta, the second-biggest U.S. airline, a deal would increase access to Europe's busiest airport and boost its ability to capture lucrative trans-Atlantic business traffic.

"Virgin Atlantic has some interesting slots at Heathrow and slots are a very scarce commodity in the U.K.," said Arnaud Bouchet, a Singapore-based analyst at BNP Paribas SA. This may be "an interesting opportunity" for Singapore Air to sell its stake, he said.

Representatives for Delta, Virgin and Air France-KLM declined to comment. The Delta talks were reported yesterday by the London-based Sunday Times.

Singapore Air was little changed at S$10.72 at 9:28 a.m. in Singapore trading. The carrier paid 600.3 million pounds, or about $961 million today, for the Virgin stake in 1999.

Virgin Losses

Virgin has been seeking partners and in 2010 hired Deutsche Bank AG to assess options. The carrier, which isn't a member of one of the three global airline alliances, posted a pretax loss of 80.2 million pounds for the year ended February.

The airline is adding short-haul routes to Heathrow from U.K. cities including Manchester to feed services to Asia and the U.S. It's also seeking a replacement for Chief Executive Officer Steve Ridgway, 61, who retires early next year after 11 years in the post. During his tenure the airline emphasized perks such as spa treatments and high-design lounges to win business travelers.

Bigger BA

The carrier is facing greater competition at Heathrow after British Airways parent International Consolidated Airlines Group SA bought BMI earlier this year. The deal bolstered IAG's share of slots at the airport to more than 50 percent. Heathrow is operating at near-capacity and the operator is struggling to get government backing for building a third runway.

British Airways is also cooperating more closely with AMR Corp.'s American Airlines, the U.S. co-leader of Oneworld, on trans-Atlantic routes. Branson lobbied antitrust regulators for more than a decade in an unsuccessful effort to prevent the move.

Delta is working to increase its share of international business travel with moves including a $1.2 billion overhaul of facilities at John F. Kennedy International Airport in New York, catching up to improvements made by rivals. The airline, the world's second-largest carrier, is in the SkyTeam alliance with Air France.

Singapore Air doesn't need more access at Heathrow because it flies Airbus SAS A380 superjumbos to the airport, said BNP Paribas's Bouchet. The European economic slowdown is damping travel demand as well, he said.

The carrier is also boosting its focus on the Asia-Pacific region to tap faster growing markets. Last month, it purchased 10 percent of Branson-backed Virgin Australia Holdings Ltd., the nation's second-biggest airline, for A$105 million ($109 million). Regional unit SilkAir in August signed a provisional deal for 54 Boeing Co. 737 planes to double its fleet.

"If cash comes from Virgin and they are contemplating a new acquisition in the region it could be quite beneficial," said Bouchet. "They are very opportunistic and their cash position is really fantastic."

—With assistance from Patricia Kuo in London and David Fickling in Sydney. Editors: Kevin Miller, Neil Denslow

To contact the reporters on this story: Matthew Campbell in London at mcampbell39bloomberg.net; Mary Jane Credeur in Atlanta at mcredeurbloomberg.net

To contact the editor responsible for this story: Jacqueline Simmons at jackiembloomberg.net