Today various news organizations have reported that Delta Air Lines is considering merging with Virgin Atlantic … however these news stories, ranging from Bloomberg News to Fox News, are leaving out a vital piece of information … the two airlines cannot legally merger.
The global airline industry is heavily regulated; among these strict regulations are those that govern the foreign ownership of airlines. Virgin Atlantic must adhere to European Union regulations that prohibit foreign entities to own more than 49% of a EU airline. In the United States an airline may not allow a foreign entity to own more than 25% of a US airline.
While Singapore Airlines has been seeking to offload its 49% ownership in Virgin Atlantic … and in fact Delta Air Lines could purchase than 49% stake in Virgin Atlantic … there is no way for Delta to merger with Virgin Atlantic. In order for the two airlines to merge, or for Delta to purchase more than 49% of Virgin Atlantic, a number of laws would be required to be rewritten.
Virgin Atlantic has been on its own for a long time, fending off larger competitors and competitors in alliances. While the Virgin Atlantic has a unique personality, strong branding, a large number of sought after slots at London Heathrow Airport and loyal flyers, the airline is very much alone and in need of allies rather than competitors. A strong alliance could be beneficial for Virgin Atlantic, and it could be attractive to SkyTeam, as they are the only alliance with no airline calling London home … but that is not the same as merging with Delta Air Lines.
I have learned never to say “It can’t happen” in the airline industry … but with the way this news story being reported I am going to go ahead and say “A merger between Delta Airlines and Virgin Atlantic cannot happen.” What could happen? Delta could offer Singapore Airlines roughly US$350,000,000 to purchase its 49% stake in Virgin Atlantic, form a joint venture agreement for Trans-Atlantic routes and become a major competitor to British Airways and American Airlines.