Virgin had better remove all references to being British then....

Wonder if IAG will lodge a complaint about Delta owning more than 49%...

So a recap

AirFrance-KLM buys 31% of Virgin Atlantic for $287 million (meaning that Virgin Group will only own 20% of the airline, Delta will own the remaining 49%)

Delta buys 10% of AirFrance-KLM for $438 million

China Eastern buys 10% of AirFrance-KLM (amount paid hasn't been disclosed yet)


Keep in mind Delta has a 3.2% stake in China Eastern.

Talk about a blockbuster deal. You have to wonder how China Southern and Alitalia feel about this.

jbs2886 wrote:

There is no aggregation of indirect interests.

Some people have stated this, but do you have a source?

Now we know how SRB cashes out of Virgin Atlantic. Sad to see this . Virgin is an airline with "fight" in its history always having the UK deck stacked against it by the Late Lord King and late Sir Colin Marshall of British Airways. First it was stuck at Gatwick until 1991 when United and American purchased the Heathrow slots of Pan AM & TWA, then it was "allowed" to fly from LHR where it has been fighting and thriving against BA. Whatever happens I hope Virgin never gets sold to BA and if it does sold into a bigger group KLM takes good care of them.

Interesting deal, wonder how this will work out. Will they make Virgin Atlantic more of a network carrier, including building up a European network again?

micstatic wrote:

Why would delta want a stake in Air France / klm? Would think they would not want the mess that comes with Air France. Even if partners already.

Without numbers, it's hard to say exactly, but this whole thing sure smells like Delta essentially gave AF/KL the money to buy the 31% Virgin stake.

I did notice in the BBC article it reckons VS will.make a loss this year...

KATL2 wrote:

You have to wonder how China Southern and Alitalia feel about this.

Some years ago, I recall reading here that there might have been an inclination in the Chinese central government to consider a merger of China Southern and China Eastern. I think the DL investment in MU, on the one hand, and the formation by CZ and AA of a U.S.-P.R.C.-specific alliance, on the other, seem to indicate that at this point such a merger is not likely. In any case, I don't think CZ would feel snubbed by DL or anyhing, as they have chosen to get closer to a different U.S. carrier. Having said that, CZ has if I am not mistaken strong ties with AF and KL, to the extent that AMS gets A380 service by CZ. As a side note, when looking for DL award tickets in Asia, CZ flights come up more than MU's or other SkyTeam members (in my recent experience).

AZ probably has bigger problems to deal with. In any case, they will remain a part of this TATL alliance with DL, AF, KL and VS, so this should be neutral or marginally good for them, no?

What I still wonder is what role 9W will play in all of this. They have been expanding their cooperation with DL, AF and KL on the India-Europe and India-North America markets: http://news.delta.com/delta-partner-jet ... ica-europe 9W also has started cooperating with VS: https://www.businesstraveller.com/airli ... rtnership/ Seems natural to me that they would in due time also become a party to this alliance.

Dutchy wrote:

Interesting deal, wonder how this will work out. Will they make Virgin Atlantic more of a network carrier, including building up a European network again?

Why would that be necessary? AF/KL have a pretty extensive network in Europe which can be tapped from LHR. As long as all flights are on the the same ticket, it is part of the JV. JFK-CDG whether via LHR, via AMS, direct on DL or AF should be "the same" under the JV. That's the whole point.

jbs2886 wrote:

jomur wrote:

Virgin had better remove all references to being British then....

Wonder if IAG will lodge a complaint about Delta owning more than 49%...

As we discussed above, DL does not own more than 49%. AF-KLM owns a share, of which DL owns a minority share. There is no aggregation of indirect interests.

Exactly.

But if you really want to split hairs, we can check the nationality of every individual DL stockholder. I'm sure at least 5% (and probably much higher) of them are European, which fixes everything, right?

N328KF wrote:

Without numbers, it's hard to say exactly, but this whole thing sure smells like Delta essentially gave AF/KL the money to buy the 31% Virgin stake.

That's not really the case. AF/KL sold 20% of itself. 10% to DL and 10% to China Eastern, for a total of $875 million. The Virgin Atlantic stake is $287 million.

AA100 wrote:

Jetty wrote:

In don't think this is possible as presented in the press release. DL already ownes 49% of VS, thus reaching the maximum allowed ownership under EU rules. Then DL cannot own more of VS indirectly via AF/KL.

This makes total sense and a logical next step would be for VS to become a member of SkyTeam now that it is joining this JV.

Totally agree. I imagine VS will become a member regardless of what happens.

I have a feeling a part of this has to do with tax avoidance on DL's behalf. DL hinted at their 2015 Investor Day that a significant part of their JV revenues could be domiciled in the lower rate Netherlands since they have an office there which controls Atlantic JV pricing and planning. Now their full transatlantic JVs will be rolled up into one, with HQ in Amsterdam. With DL's NOLs soon to run out meaning they would soon have to pay a 35% US corporate tax rate on profits, why not pay lower Dutch taxes on all profits from this transatlantic JV. They probably don't need to repatriate the funds as they have huge expenses abroad so this would be a smart way to lower their effective tax rate.

CaliguyNYC wrote:

I think this is all about letting VS into the transatlantic JV rather than needing help. .

VS is expected to post around 90m loss this year..so not exactly in a great position. I see it more as the original DL deal not going to plan and DL asking its mates AFKL to buy in to give more control via a 10% cash injection into AFKL to finance the deal.

EddieDude wrote:

KATL2 wrote:

You have to wonder how China Southern and Alitalia feel about this.

Some years ago, I recall reading here that there might have been an inclination in the Chinese central government to consider a merger of China Southern and China Eastern. I think the DL investment in MU, on the one hand, and the formation by CZ and AA of a U.S.-P.R.C.-specific alliance, on the other, seem to indicate that at this point such a merger is not likely. In any case, I don't think CZ would feel snubbed by DL or anyhing, as they have chosen to get closer to a different U.S. carrier. Having said that, CZ has if I am not mistaken strong ties with AF and KL, to the extent that AMS gets A380 service by CZ. As a side note, when looking for DL award tickets in Asia, CZ flights come up more than MU's or other SkyTeam members (in my recent experience).

AZ probably has bigger problems to deal with. In any case, they will remain a part of this TATL alliance with DL, AF, KL and VS, so this should be neutral or marginally good for them, no?

What I still wonder is what role 9W will play in all of this. They have been expanding their cooperation with DL, AF and KL on the India-Europe and India-North America markets: http://news.delta.com/delta-partner-jet ... ica-europe 9W also has started cooperating with VS: https://www.businesstraveller.com/airli ... rtnership/ Seems natural to me that they would in due time also become a party to this alliance.

The issue with any sort of Jet Airways tie up with Delta/SkyTeam is that Etihad still has a large ownership stake in Jet

anstar wrote:

CaliguyNYC wrote:

I think this is all about letting VS into the transatlantic JV rather than needing help. .

VS is expected to post around 90m loss this year..so not exactly in a great position. I see it more as the original DL deal not going to plan and DL asking its mates AFKL to buy in to give more control via a 10% cash injection into AFKL to finance the deal.

AirFrance-KLM isn't going to spend $287 million just because Delta says "help a buddy out". This is part of a larger strategic investment.

Nola wrote:

jbs2886 wrote:

This has some pretty big news and the headline (while taken from AF-KLM PR) doesn't given enough info. I think they fact DL and CE each are buying 10% of AF-KLM is significant, moreso than AF-KLM buying 31% of Virgin Atlantic. Ultimately, this is a huge expansion of DL's influence (remember DL owns 3.5 or something percent of China Eastern and has a non-voting board seat).

I wonder, too, if this 750M euro influx of cash (only 220M for Virgin Atlantic) will be used to purchase another European airline in coordination with DL (much like Virgin Atlantic now)...

Like, perhaps, Alitalia? Or at least part of Alitalia?

How about using Virgin Atlantic in Italy, once Alitalia collapses? Or in other markets not served currently by AF/KLM?

jbs2886 wrote:

Jetty wrote:

jbs2886 wrote:

There is no aggregation of indirect interests.

Some people have stated this, but do you have a source?

No, but generally speaking, it isn't that simple. What you cited to does not include corporate attribution rules.

I agree it isn't that simple, especially as the wording in the regulation is deemed vague by aviation law experts and this is the 1st case where a non-EU airline indirectly plans to own a majority of an EU airline. Thus I conclude this MAY be a risk for this deal going ahead. At least isn't as simple as "there is no aggregation of indirect interests".

How about using Virgin Atlantic in Italy, once Alitalia collapses? Or in other markets not served currently by AF/KLM?

Italian Virgin Oil -> Virgin Airlines -> Virgin Airlines Italia... sounds logic to me.


OT: Great development, interested to see what happens to Virgin, I think KLM could really benefit here with it's Good UK connections, now being able to tap the Virgin- market as well.

FlyRow wrote:

How about using Virgin Atlantic in Italy, once Alitalia collapses? Or in other markets not served currently by AF/KLM?

Italian Virgin Oil -> Virgin Airlines -> Virgin Airlines Italia... sounds logic to me.


OT: Great development, interested to see what happens to Virgin, I think KLM could really benefit here with it's Good UK connections, now being able to tap the Virgin- market as well.

Yep. I am sure KLM will be very interested in tapping the Virgin-market...

Haha

For the record there are a number of non-EU country that are included in the EU aviation agreement. Switzerland and Iceland for instance. Now it wouldn't be inconceivable that once the UK exits the EU they may still remain in the EU agreement thus substantially maintaining the status quo

jomur wrote:

Virgin had better remove all references to being British then....

Wonder if IAG will lodge a complaint about Delta owning more than 49%...

Why? They are a British based airline. Delta doesn't own more than 49%.

Jerry123 wrote:

jomur wrote:

Virgin had better remove all references to being British then....

Wonder if IAG will lodge a complaint about Delta owning more than 49%...

Why? They are a British based airline. Delta doesn't own more than 49%.

Pecuniary gain is one measurement of the degree of ownership. Ultimately 51% of VS' profits end up at DL (2% through AF/KL). So it's not that simple.

I wonder now if all parties involved will seek to create a JV with 9W as a prelude to 9W's admittance into SkyTeam. VS could benefit from 9W traffic.

Atlwarrior wrote:

Polot wrote:

Brokkenpiloot wrote:

I always wondered what DL/Skyteam saw in VS. They barely add any cities to the SkyTeam-network they don't already serve. Is it just for the London O&D market?

Yes basically. LHR-US is a huge market and DL alone had the worse slice of the pie (BA and VS obviously had hometeam advantage, AA had BA hookup, UA had decades of legacy operations there).

United has not had that many decades of operations at Heathrow. The airline simply purchased Pan Am slots in the 1990's for $400 million.

From the Chicago Tribune:

April 05, 1991|By R.C. Longworth, Chicago Tribune.


New
"LONDON — United Airlines Flight 918, barely half full but 40 minutes early, arrived at Heathrow Airport from Washington Thursday to complete the airline`s takeover of Pan American World Airways` lucrative London routes.

The last Pan Am flight from London, Flight 11 to New York, took off just 12 hours earlier. As it left, a single bagpiper played a last call for a service that never recovered from the terrorist bombing of Pan Am`s Flight 103 over Lockerbie, Scotland, three years ago."


And Pan Am had 5 decades of London service prior. So United started out in a pretty good place. And then things got bad. And now slowly getting better?

Back on topic, I think this is smart for Delta to secure amongst friends most of VS, but I'm wondering about the strained AF/KL relationship that is often mentioned - could be a mess if there is a breakup down the road? Anyway, lots of unpredictable trends going on in the global aviation market.


Adam

Jetty wrote:

Jerry123 wrote:

jomur wrote:

Virgin had better remove all references to being British then....

Wonder if IAG will lodge a complaint about Delta owning more than 49%...

Why? They are a British based airline. Delta doesn't own more than 49%.

Pecuniary gain is one measurement of the degree of ownership. Ultimately 51% of VS' profits end up at DL (2% through AF/KL). So it's not that simple.

Not necessarily. Any profits/losses from AF/KL's investment in VS will be netted against other investments of AF/KL and the overall P&L of AF/KL before they reach each investor in AF/KL i.e Delta. There is a way, though, where the shares AF/KL has in VS are actually given to DL as a form of payment from AF/KL to its investor DL instead of cash from dividend, interest or capital gain.

Throw AZ into the mix...this is all about to get very interesting.

I looked into the EU ownership rules. Just last month the EU released interpretative guidelines on the relevant regulation, in large part concerning exactly this scenario (where a non EU company owns an indirect majority): https://ec.europa.eu/transport/sites/tr ... rriers.pdf . The timing of the deal might not coincidentally be 1 month after those were released, if DL wanted more certainty about how to interpret the rules before going ahead.


The following case may serve as an example: EU shareholders own 55% of company A (the rest being owned by third countries or third country nationals; hereinafter: third country shareholders), and company A in turn owns 60% of carrier B, the remaining 40% shareholding in carrier B being owned by third country shareholders.

Here, the question is whether EU shareholders "own more than 50% of the undertaking".

(...)

the pecuniary rights may still be considered sufficient for the purposes of Article 4(f) of the Regulation.

Cases of the like should however be considered individually, taking account of all circumstances, and in particular all the arrangements affecting the relevant rights and obligations.

KATL2 wrote:

The issue with any sort of Jet Airways tie up with Delta/SkyTeam is that Etihad still has a large ownership stake in Jet

I am not talking about Jet Airways joining SkyTeam. I am talking about joining the DL-VS-AF-KL-AZ TATL alliance. VS is in it and it is not a SkyTeam member. On the other hand, Jet Airways and DL are already partners in the India-Europe-North America market, so the Etihad ownership situation should not be an issue as Etihad is fine with 9W being in bed with DL.

https://www.nytimes.com/reuters/2017/07 ... talia.html

Here's some little more information above. It indicates that Alitalia's struggle apparently plays a role in the formation of this alliance...

Aeroplasma wrote:

https://www.nytimes.com/reuters/2017/07/27/business/27reuters-air-france-klm-alliance-alitalia.html

Here's some little more information above. It indicates that Alitalia's struggle apparently plays a role in the formation of this alliance...

Note, this is Reuters article. I'm sure the Times will weigh in with a little more depth in the coming days.

Someone83 wrote:

Guess that means Richard Branson is more or less out of vakling any shots at Virgin Atlantic anymore as Virgin Group now 20% share is more or less a financial investment

Branson is still staying as chairman of virgin, although technically still just a figure head, still on the board.

EddieDude wrote:

Jetty wrote:

Not only that, DL will also buy 10% of AF/KL, indirectly adding 2% to the investment of DL in VS = 51% total.

It does not work like that. AF-KL Group having DL and MU as minority shareholders does not (or should not) change its status as an entity controlled by European Union investors. In this sense, VS will continue to be 49% owned by foreign investors (i.e., by DL).

If it were my decision; post Brexit, I would be putting a cap of 24% ownership by American companies of British companies in the aviation sector, and telling DL to divest 25%;

Seems only fair to me; as a British company would not be permitted to purchase more than 24% of any US carrier.

And people on anet kept on saying alliances are "dead" the same way pc were "dead" two decades ago

TerminalD wrote:

Someone83 wrote:

Guess that means Richard Branson is more or less out of vakling any shots at Virgin Atlantic anymore as Virgin Group now 20% share is more or less a financial investment

It means Richard Branson is essentially no longer in the airline industry...

Virgin Group remains heavily invested in the airline industry in that it will continue to receive significant licensing fees from VS for using the Virgin name just as it does from VA where Virgin Group's stake has reduced over 18 years from 100% to only 10%.

SelseyBill wrote:

EddieDude wrote:

Jetty wrote:

Not only that, DL will also buy 10% of AF/KL, indirectly adding 2% to the investment of DL in VS = 51% total.

It does not work like that. AF-KL Group having DL and MU as minority shareholders does not (or should not) change its status as an entity controlled by European Union investors. In this sense, VS will continue to be 49% owned by foreign investors (i.e., by DL).

If it were my decision; post Brexit, I would be putting a cap of 24% ownership by American companies of British companies in the aviation sector, and telling DL to divest 25%;

Seems only fair to me; as a British company would not be permitted to purchase more than 24% of any US carrier.

I doubt that any government would seek to apply a law like that retroactively. It could be written in such a way that would require any future share sales to work towards an ownership cap, but writing a law which forces a company to sell shares which they have legally already bought would leave business leaders with a sour taste in their mouths.

SelseyBill wrote:

If it were my decision; post Brexit, I would be putting a cap of 24% ownership by American companies of British companies in the aviation sector, and telling DL to divest 25%;

Seems only fair to me; as a British company would not be permitted to purchase more than 24% of any US carrier.

Not quite correct. Foreign companies are allowed to own up to 49% of a US carrier, but less than 25% of the voting stock.

Does anyone see the VS brand going in the medium term? We saw what happened over at VX so can't be ruled out.

Virgin Australia could be the last Virgin standing.

People are all so worried about the ownership restrictions... They are not so relevant. Most routes are to the US anyway.
Delta can just absorb Virgin Atlantic and cancel the few routes it can not fly on it own right.
IMHO they should just use the JV as an excuse to introduce a common product standard, which eventually transmits Virgin's brand equity do Delta. After that the should gradually migrate the routes to Delta, limiting Virgin to holiday flying.

Interesting if you consider, 25 years ago or so, KLM owned a percentage of NW. Now here we are with DL owning and NW and have a 10 percent stake in KLM/AF.

Brokkenpiloot wrote:

I always wondered what DL/Skyteam saw in VS. They barely add any cities to the SkyTeam-network they don't already serve. Is it just for the London O&D market?

That's exactly what VS adds to DL and now to the AF/KL network. Think of it from this way:

from a number of major out markets (particularly those with British ties) such as LOS, DEL, JNB the alliance (assuming non-US cities aren't part of the JV) can offer CDG, AMS and now LHR as destinations. Offering Europe's biggest city along with the city of lights makes SkyTeam appealing.

within Europe, AF/KL corporate sales accounts can now market a decent number LHR long-haul options to pan-european companies. Offering London options makes a corporate sales agreement with AF/KL more appealing.

I think all of us commenting on this are in a mindset that we are playing checkers. Delta and its attorneys are playing chess. We are the seeing the initial steps toward the creation of the worlds first truly global airline. I don't mean code sharing or joint ventures. I don't mean an airline with a single hub in the middle east and flights all over the world.
Delta and its partners already were unique, going back to the original NWA-KLM JV, in that their joint ventures were based on sharing revenues and sharing costs and sharing profits. Other joint venture agreements focus on sharing revenues but not the cost and overall venture profitability factors. We are now seeing the evolution from the revenue, cost, profit sharing joint venture toward a structure that further binds them with common directors, full strategic coordination and an ability to leverage the purchasing power of a huge buying entity.

Will this work long term? Who knows but it seems to be another out of the box attempt by Delta to maximize shareholder value.

No one seems to be talking recently about the Refinery investment by Delta, which generated a $50mm profit during the first 6 months of 2017, but also resulted in Delta as far as I have seen, having the lowest cost of fuel on a per gallon basis. Not bad for a $350mm investment! If Delta can average 5 cents per gallon lower fuel than its competitors on a consistent basis that explains why they are very happy in having ordered 220+ 737-900ER's and A321 ceo's instead of holding out for the more expensive max and neo upgrades. I am glad they stopped playing those games with trying to hedge their fuel purchases. Reminded me too much of betting on red or black on the roulette wheel and they were doing it just because WN had had a streak of luck previously with their fuel hedges.

Edited to correct some typos and missing prepositions and conjunctions---

Oykie wrote:

Nola wrote:

jbs2886 wrote:

This has some pretty big news and the headline (while taken from AF-KLM PR) doesn't given enough info. I think they fact DL and CE each are buying 10% of AF-KLM is significant, moreso than AF-KLM buying 31% of Virgin Atlantic. Ultimately, this is a huge expansion of DL's influence (remember DL owns 3.5 or something percent of China Eastern and has a non-voting board seat).

I wonder, too, if this 750M euro influx of cash (only 220M for Virgin Atlantic) will be used to purchase another European airline in coordination with DL (much like Virgin Atlantic now)...

Like, perhaps, Alitalia? Or at least part of Alitalia?

How about using Virgin Atlantic in Italy, once Alitalia collapses? Or in other markets not served currently by AF/KLM?

The problem with any Virgin expansion is that the licensing of the name is not cheap and in a business as cut throat as aviation. So i dont think there will be much VS expansion.

EddieDude wrote:

I am not talking about Jet Airways joining SkyTeam. I am talking about joining the DL-VS-AF-KL-AZ TATL alliance. VS is in it and it is not a SkyTeam member.

There is no DL-VS-AF-KL-AZ TATL alliance. I'm sure the ownership move this thread is discussing is a prelude to one, but at the moment there are two separate Joint Ventures: DL-VS, and DL-AF-KL-AZ. Because these are joint ventures any change to them, like merging them together, is subject to regulatory approval in both Europe and the USA. It's most unlikely any attempt to do this will happen until the fate of Alitalia becomes clear, since there's a real possibility it will cease to exist at the end of summer, or become controlled by airlines who have no interest in this particular Joint Venture.
For Jet Airways to join an enlarged TATL joint venture would require regulatory approval in the USA, Europe, and India (its country of registration). So far no Indian airline belongs to a Joint Venture (as opposed to alliances). Maybe posters based in India could tell us whether this is even possible under Indian competition law, and if it is, what sort of safeguards/concessions regulators might require. Remember the existing TATL JVs came at a regulatory price...

I don't get it (happens). Can someone please explain the motivation for this?

Delta: They own enough of Air France that it would hurt to lose the investment, but not enough to influence/control Air France? Probably no investment in Air France would control Air France as long as it's governed by the French government and run by French unions. Air France seems like the sort of stock Delta would *not* want to own for a simple investment, and it seems that 10% might not be enough to influence Air France.

AF: Buying a junior-sized portion of an airline that's *sort of* controlled by Delta does not buy you control of Virgin. Selling 10% of your self to Delta .. AF could be business partners with Delta without selling any portion of itself.

downdata wrote:

And people on anet kept on saying alliances are "dead" the same way pc were "dead" two decades ago

Where do alliances fit into this !! They are dying, this is about ownership and joint ventures , which is the modern way.

Geoff