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Blue skies seen for Alaska-Virgin

Experts predict benefits for many air travelers

By Dominic Gates, The Seattle Times
Published: April 6, 2016, 6:00am

SEATTLE — Die-hard fans of Virgin America may be upset that Alaska Airlines is set to swallow the smaller San Francisco-based carrier, known for its stylish sense of cool.

Yet airline experts say Alaska’s absorption of Virgin likely won’t raise West Coast fares. And the beefing up of Alaska’s network, particularly in California, should bring real benefits for many air travelers.

For the Seattle-based airline, executing the merger without major stumbles — admittedly, a real challenge — should secure its long-term growth. Still, one big local company may see a darker side to the news. If Alaska comes to appreciate its new fleet of Airbus jets, Boeing has the most to lose.

In a teleconference call, Alaska’s Chief Executive Brad Tilden said Alaska has been contemplating an acquisition for a couple of years and first approached Virgin last fall.

When rival second-tier premium carrier JetBlue threw its hat in, the negotiations became a bidding war that Tilden described as “hard-fought.”

Alaska said it will borrow $2 billion for the $2.6 billion acquisition. With a stronger balance sheet than JetBlue, it will have no trouble securing the financing.

Virgin America shareholder approval is expected in June, and Alaska hopes to secure regulatory approval in late fall to close the deal by year end.

The two airlines will continue to fly as separate entities for about a year after that until they get a combined operating certificate from the Federal Aviation Administration. Then they’ll be a single airline.

For Boeing, the stakes are high.

Alaska’s mainline fleet consists of a single aircraft family, the Boeing 737. In the Monday teleconference, Alaska executives said they haven’t decided exactly how they will deal with the acquisition of Virgin’s fleet of Airbus planes.

“We like a single fleet, yes. I mean, as an operations guy, if you have the single fleet, it’s so much easier across employees, particularly with pilot groups,” said CEO Tilden. “But the Airbus is a proven airplane. So we’ll see.”

Virgin operates 60 Airbus A320s, almost all leased. It is committed to lease 10 new A321neo aircraft in 2017 and 2018, and has firm orders directly with Airbus for three more A320s and 30 A320neos.

Brandon Pedersen, Alaska’s chief financial officer, said that as the Virgin A320s come off lease, starting in 2020, Alaska could let them go if it chooses to, gradually reverting over time to a fleet weighted toward Boeing jets.

But the conversation on the teleconference did not suggest that is a likely option.

And Addison Schonland, industry analyst and founder of Air Insight, published a piece Monday predicting that “the newer, bigger, Alaska will keep both Airbus and Boeing in the fleet.”

He said this will provide new leverage over Boeing in price negotiations. More significantly, he sees the largest Airbus A321neo as particularly suitable for Alaska’s opening up new long-range routes.

“Alaska is Boeing-biased, which is fine,” Schonland wrote. “But as Alaska executives learn about the A321, especially the A321neo, this is likely to change.”

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