What Does Virgin Deal Mean for Delta?

Delta Air Lines (NYSE:DAL) has reached an agreement with Singapore Airlines to acquire its 49 percent stake in Virgin Atlantic Airways, unlocking valuable slots at London’s Heathrow airport for the U.S. carrier and initiating a lucrative trans-Atlantic joint venture.

What Are the Details of the Deal?

The statement released by Delta notes that “as part of this joint venture agreement, Delta will invest $360 million in Virgin Atlantic, acquiring a 49 percent stake currently held by Singapore Airlines.”

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The two airlines plan to enter a “metal neutral” arrangement where they share the costs and revenue from all joint-venture flights. The combined venture will offer up to 31 round-trip flights between North America and the United Kingdom on a peak day.

There will be about nine daily round-trip flights from Heathrow to JFK International and Newark Liberty International Airport. Passengers will be able to claim reciprocal frequent flyer miles and have shared access to sky clubs.

“Our new partnership with Virgin Atlantic will strengthen both airlines and provide a more effective competitor between North America and the U.K., particularly on the New York-London route, which is the largest airline route between the U.S. and Europe,” said Delta CEO Richard Anderson in the statement.

CHEAT SHEET Analysis: Is this Truly Mutually Beneficial?

Delta’s statement reads: “Virgin Group and Sir Richard Branson will retain the majority 51 percent stake and Virgin Atlantic Airways will retain its brand and operating certificate.”

There was some speculation before the deal was officially announced that Delta would devour the Virgin brand in the process…

Virgin Atlantic“I can’t see Delta wanting to operate the Virgin brand because if they do, what does that say about the Delta brand?” said Willie Walsh, CEO of British Airways, according to The New York Times.

British Airways currently holds as much as 53 percent of the available slots at Heathrow, which is operating at full capacity and has been denied an additional runway. British Airways also already has a trans-Atlantic partnership with American Airlines (AARMQ.PK), one of Delta’s top competitors.

With the new deal, Delta will be able to tap into Virgin Atlantic’s 3.3 percent share of slots at Heathrow, a huge addition to the 0.3 percent of slots it currently controls.

How Will This Affect Delta’s Stock?

One of the core components of our CHEAT SHEET investing framework focuses on catalysts that will move a company’s stock. Shares of Delta closed up over 5 percent in Tuesday trading after the deal was announced. Investors seem to buy the company’s argument that increased access to Heathrow is worth a $360 million investment. Buzz surrounding the deal has pushed the stock up over 7 percent in the last 5 days.

Shares of US Airways Group (NYSE:LCC) finished up almost 1 percent on Tuesday because of ongoing news that the carrier is aggressively pursuing the acquisition of American Airlines, which is currently in bankruptcy. Shares of Southwest Airlines (NYSE:LUV), the only major carrier to escape the financial crisis without entering bankruptcy, closed up 2.85 percent.

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