Delta Air Lines, Inc. (NYSE:DAL) is expected to receive an OK from the European Union to buy a 49 percent stake in privately held Virgin Atlantic Airways Limited, Reuters reports, ahead of an official decision due June 20.
The European Commission, the administrative arm of the 27-member European Union and the body that regulates and scrutinizes such deals, doesn’t think that the deal will unduly disrupt competition in the air travel industry, three people familiar with the matter told Reuters.
“The European Commission is likely to approve the deal without conditions,” one source told Reuters.
The two air travel giants unveiled their $360 million joint venture proposal in December 2012. They seek to capture more business on lucrative U.S.-UK travel routes and will split costs and revenue on all joint venture flights.
According to Reuters, United Continental Holdings Inc. (NYSE:UAL), as well as a partnership between American Airlines, Inc., which is owned by AMR Corporation (OTCMKTS:AAMRQ), and British Airways PLC (OTCMKTS:BAIRY) dominate travel between the U.S. and London. The Delta-Virgin partnership will seek to capture more traffic out of London’s Heathrow Airport, the busiest in the world.
Delta will seek 49 percent of Virgin’s shares, taking them over from Singapore Airlines Ltd. (SGX:C6L), while Virgin Group and Richard Branson will retain a majority 51 percent stake, Delta said at the time.
The two airlines formally notified the European Commission of the deal on May 15, seeking approval. At the time, the commission noted that the transaction could fall within the scope of European Commission merger rules but made no formal decisions.
Delta and Virgin also asked for antitrust immunity from the U.S. Department of Transportation on April 8, noting that British Airways and American Airlines together hold about 60 percent of Heathrow’s airport slots, which lets them dominate the New York-London market, the most important business route in the world.
That decision is still pending.
“In this situation, when you already have a partnership between American Airlines and British Airways, you almost have to let this go through, because it actually helps the competitive landscape,” said Fred Lowrance, an Avondale Partners research analyst who follows Delta.
“Had this been the first one of their kind; a lot more analysis probably would’ve needed to be done,” Lowrance said. He found the supposed EU approval unsurprising, citing precedents and the British Airways-American Airlines partnership.
“[Delta] have been lagging behind, and they’ll never catch up to the British-American combination, but they really need to beef up their presence across the Atlantic,” Lowrance said. “This deal accomplishes that for them.”
Lowrance expects that U.S. regulators will approve the deal, too, on similar grounds. A Delta-Virgin joint venture stimulates fair competition by challenging the established British Airways-American Airlines dominance, he said.
Nat Rudarakanchana covers commodities and companies for the International Business Times. He is especially interested in precious metals, the food and drink industry, and...