Alaska Air Group has agreed to buy rival Hawaiian Airlines in a $1.9 billion deal, setting up another potential regulatory battle in the second proposed airline merger in less than two years.
Alaska would pay $18 a share for Hawaiian and assume $900 million of its debt, the companies said Sunday. Shares of Hawaiian Airlines closed Friday at $4.86, giving the company a market capitalization of about $250 million. This year they are down almost 53%.
The airline has faced challenges, including the Maui wildfires and increased competition Southwest Airlines, which has ramped up service in Hawaii in recent years, and a lagging recovery in travel to and from Asia after the pandemic. Hawaiian has posted net losses in almost one quarter since the start of 2020, while Alaska and other airlines have returned to more solid financial footing as the pandemic subsided.
“What we saw here was a unique opportunity in time at the valuation that we saw Hawaiian at,” said Shane Tackett, Alaska Airlines CFO, in an interview. He said the deal would also allow the combined companies to become a “market leader” in Hawaii's premium travel market.
Shares of Hawaiian rose 180% in premarket trading on Monday, although still below the proposed purchase price. Shares of Alaska fell 13% in premarket trading.
Carriers have faced strong opposition from President Joe Biden's Justice Department as they argued they need to work together to better compete with bigger rivals. Earlier this year, the Justice Department won a lawsuit to sever a Northeast regional partnership between the two JetBlue Airways And US airlines.
The Justice Department has also filed a lawsuit over the blocking JetBlue Airways'proposed acquisition of discount carrier Spirit Airlines. The process is expected to be completed in the coming days.
Four airlines – American, United, Delta and Southwest – control about 80% of the US market, a consolidation that is the result of years of mergers.
Hawaiian and Alaska said they expect the transaction to close within 12 to 18 months, subject to approval by regulators and Hawaiian shareholders.
On a call with analysts on Sunday evening, Alaska CEO Ben Minicucci expressed confidence that the deal will be approved, citing 12 overlapping markets, a total of 1,400 daily flights and a larger network that he said will put the airline in would allow it to compete with the four largest airlines. .
“We are hopeful that this will be seen in a positive light,” he said.
The Association of Flight Attendants-CWA, which represents cabin crew at both airlines, said it would review the deal.
“Our first priority is to determine whether this merger will improve conditions for flight attendants, as well as the benefits the companies have described for shareholders and consumers,” the AFA said in a statement. “Our support for the merger will depend on this.”
The combined company will be based in Seattle, where Alaska Airlines is headquartered, and will be led by Minicucci.
“Given the transaction dollars we paid, we think this is strategically a step change for us to accelerate not only our financial performance, but also the growth of our network,” he said on the call.
Shift for Alaska
The two airlines said they will retain each airline's brand name but operate under a single platform, forming a fleet of 365 aircraft covering 138 destinations.
Before Alaska Airlines pursued Hawaiian, it acquired Virgin America in 2016 for $2.6 billion.
The Hawaiian deal represents a big change for Alaska. It functions Boeing 737s and it has spent years downsizing Virgin's fleet of Airbus planes to streamline its fleet. The purchase of Hawaiian would bring a complex mix of Boeing and Airbus jets, both narrowbody and widebody, under Alaska's roof.
“The Hawaiian brand will remain an important part of our home state, with Honolulu becoming a strategic hub for the combined company and a comprehensive service to the people of Hawaii,” Hawaiian CEO Peter Ingram said on a call Sunday.
The combination will allow Alaska Airlines to triple nonstop or one-stop flights from the Hawaiian Islands to destinations throughout North America. It will also bring Hawaiian's long-haul flights to and from Asia under the Alaska umbrella. Hawaiian struck a deal last year to fly converted cargo planes Amazon.
Alaska Airlines said the deal should boost earnings within the next two years with at least $235 million in run-rate synergies.
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