Access to Heathrow, and by extension many other European hubs, by a partnership with Virgin Atlantic would certainly be to Delta’s benefit. However, if the U.S. carrier wants to control any joint venture, European law mandates that EU carriers remain under European control, meaning Delta would need a partner.
The most likely is Air France-KLM. Observers speculate that Air France could buy a small stake from Branson to create a controlling share between it and Delta to establish the JV. Air France is not participating in any of the discussions between Delta and Singapore Airlines.
If successful, Delta could gain an edge against other U.S. carriers in a market that has become tremendously competitive over the past few years. The financial collapse drove many carriers to the brink of collapse and recovery has been slow and expensive. Delta did not survive the recession unscathed and is in a more dubious position than competitors such as Southwest Airlines (NYSE:LUV). Every cost-cutting plan has been put on the table and consolidating the efforts of different airlines is a well-established means of driving efficiency.
Evidence of this is how aggressive US Airways Group (NYSE:LCC) has been in its bid to take over American Airlines. The Delta-Virgin Atlantic initiative could be an effort to better position Delta for a future where US Airways and American Airlines are consolidated.
Investing Insights: Has Sandy Offered a Buying Opportunity for Macy’s Stock?