LONDON/SINGAPORE -
Singapore Airlines is in talks to sell its 49 per cent stake in British carrier
Virgin Atlantic, with sources saying Delta Air Lines is among the suitors keen
to access Virgin's lucrative slots at London's Heathrow airport.
Richard Branson's Virgin
Group wants to keep its 51 per cent stake in Virgin Atlantic and work with
Delta if the US carrier pulls off a deal, a source familiar with Branson's
thinking added on Monday.
Singapore Airlines said in
a brief statement it was in talks with interested parties but did not name
them.
It also cautioned the
discussions might not result in a deal.
Airlines like Delta have
long hoped to break into London's capacity-constrained Heathrow airport, a
lucrative hub for corporate passengers where landing slots are generally hard
to acquire.
Virgin Atlantic is the
second-largest carrier at Heathrow after IAG's British Airways.
Delta has been considering
ways to partner with Air France-KLM, which could also take a stake in Virgin
Atlantic, one person familiar with the matter said.
The European Union requires
that EU carriers be under European control, meaning Delta would need an EU
airline as a partner if it wanted majority control of Virgin Atlantic.
If Air France-KLM were to
buy a small percentage of Branson's stake, then Virgin Atlantic could continue
to be European controlled.
However, the source close
to Branson signalled the British entrepreneur was not looking to sell.
"As far as he
(Branson) is concerned, it is just Singapore Airlines' 49 per cent stake that
is up for sale - he is keen to maintain control of Virgin Atlantic and form a
stronger airline," the source said, adding Branson supported a deal with
Delta because it would make Virgin Atlantic stronger on routes between Britain
and the United States.
Delta, the second-largest
US airline by revenue after United Continental, has been looking to acquire a
stake in Virgin Atlantic 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, two people familiar with the matter said.
"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," said George Hamlin, an aviation consultant in
Fairfax, Virginia.
A deal with Delta would
also give Virgin Atlantic access to hundreds of markets on a one-stop
connecting basis in the United States, he added.
Delta and Air France-KLM
declined to comment.
"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.
If Delta succeeds with its
bid, Virgin Atlantic, which is not a member of a global airline alliance, would
almost certainly join Delta and Air France's SkyTeam, the source close to
Branson said.
SkyTeam 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 Hamlin, 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."
Singapore Airlines bought
49 per cent of Virgin Atlantic for 600 million pounds (S$1171.60 million) in
1999, but has been open to selling its stake since at least mid-2011 when a
price of US$500(S$697.20)-US$600 million was mooted in markets, a banking
source familiar with the talks said at the time.
At the same time, SIA has
been refocusing on its key markets where it is under pressure from low-cost
airlines, launching its own budget carrier, Scoot, and bolstering its Asian
regional carrier, SilkAir.
Virgin Atlantic, 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 Andrew Orchard, a regional airlines analyst at CIMB
Research.
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.
Virgin Group - made up of
more than 400 companies worldwide - has a track record of selling down its
stakes in businesses, while retaining a minority interest.
Last year Virgin Group sold
a 51 per cent stake in its fitness chain Virgin Active to private equity group
CVC Capital Partners for US$700 million and did a US$560 million deal with US
investor Wilbur Ross for a 45 per cent stake in Virgin Money.
Branson has also reduced
his initial 49 per cent stake in Virgin Australia Airlines to 26 per cent in
recent years.
Virgin Atlantic 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 per cent of Heathrow's slots.
Virgin has since won the
rights to the remaining slots that IAG was forced to give up after the bmi deal
was cleared.
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