Will The Alaska Air-Virgin America Deal Get Delayed?

+29.17%
Upside
38.21
Market
49.36
Trefis
ALK: Alaska Air logo
ALK
Alaska Air

Alaska Air faced yet another hurdle in its acquisition of Virgin America, in a deal worth $2.6 billion. The deal has been under the lens of the Department of Justice for a while now, to assess for any anti-trust issues. Earlier in May, the two carriers had received a “second request” for more information. Although the request was termed customary, it delayed the closing of the deal by at least 30 days. Since then, another extension has been asked for by the DoJ, in order to complete the review. This, in turn, has made investors wary, causing Alaska’s stock to dip.

Fall in Alaska’s Stock Price- An Over-reaction

27091

However, according to our analysis, the deal should pass the anti-competition review quite smoothly, as its share of the U.S. market, even after the combination, would remain really small as compared to the legacy carriers, who together dominate over 60% of the market.

Relevant Articles
  1. Should You Pick Alaska Air Stock At $37 After Q4 Beat?
  2. Will Alaska Air Stock Rebound To Its Pre-Inflation Shock Highs of $70?
  3. What’s Next For Alaska Air Stock After A 24% Fall This Year And A Downbeat Q3?
  4. Which Is A Better Pick – Alaska Air Or UAL Stock?
  5. What’s In The Cards For Alaska Air’s Q2?
  6. Should You Buy Or Avoid Alaska Air Stock At $52?

ALK-Q&A-merger-14

On a related note, Virgin America’s flight attendants, recently, rejected the salary contract negotiated by its union, creating confusion on the way forward for the two airlines. The contract would have provided an immediate 7.5% pay hike, in addition to a signing bonus. Further, Virgin’s employees could have expected pay hikes after the completion of the merger. The affect of the rejection of the contract is two-fold. On one hand, Virgin’s employees, who are paid a considerably lower salary, will see no instant improvement in their pay, missing out on raises until integration completes. Apart from that, 8% of the work-force at Virgin is expected to be laid-off. On the other hand, this dismissal will deter the two airlines from achieving operational efficiency at the get-go. This comes as a blow to Alaska’s management, which hoped to quickly integrate the two airlines, their employees, and reservation systems, in order to realize the operational synergies.

ALK-Q&A-merger-6

The market’s reaction to the two snippets of news can be read as mostly an over-reaction. Trefis believes that the deal between Alaska Air and Virgin America will be successfully completed before the end of the year, without any litigation issues. Consequently, the stock should bounce back to levels seen earlier in the year.

Have more questions about Alaska Air (NYSE:ALK)? See the following links:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alaska Air Group

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research