CHICAGO: Alaska Air Group Inc says it will acquire Hawaiian Holdings Inc for US$1.9bil, including debt, placing a bet on a troubled airline with lucrative routes as US antitrust regulators fight consolidation in the sector.
Alaska Air said it would pay US$18 per share in cash, close to four times Hawaiian’s closing price last Friday.
The whopping premium reflected how battered Hawaiian’s shares were. The Maui wildfires, high fuel costs and jet engine recall issues at some of Hawaiian’s Airbus SE planes contributed to heavy losses and a 65% share price drop in the last 12 months.
The deal is bound to attract antitrust scrutiny as US regulators challenge JetBlue Airways Corp’s proposed US$3.8bil acquisition of Spirit Airlines Inc in court.
Antitrust enforcers have been suspicious of mergers between small airlines despite 80% of the US aviation sector being controlled by four players: United Airlines, American Airlines, Delta Air Lines and Southwest Airlines.
They were successful in getting JetBlue in July to abandon a three-year-old alliance with American Airlines.
The tie-up with Hawaiian would give Alaska Air, valued at US$5.1bil, control of more than 50% of the market for Hawaii flights, to one of the world’s most popular tourist destinations.
“This is where people want to come spend time and vacation and have weddings and anniversaries.
“This is something that we believe will remain strong for years to come,” Alaska Air chief executive officer Ben Minicucci said in an interview.
He expressed confidence that regulators would approve the deal by the end of 2024 because the two airlines overlap in just 12 of the 1,400 flights they collectively operate.
Alaska Air also defended its 270% premium offer as a bargain, noting that the deal values Hawaiian at 0.7 times its annual revenue, far below the industry average of 1.7 times. It added it expected a minimum of US$235mil in annual savings.
Alaska Air approached Hawaiian to discuss a potential tie-up over the summer, people familiar with the matter said.
Hawaiian posted a net loss of US$159.3mil in the first nine months of 2023, smaller than the US$189.9mil for the same period a year ago.
The Maui wildfires led to lower air traffic and a 4% spike in jet fuel costs weighed on its losses, and issues with engines made by RTX Corp’s Pratt and Whitney grounded some of its Airbus A321neo fleet.
In an investor presentation, Alaska Air noted Hawaiian’s long history of profitability before those issues, with operating margins fluctuating in mid-teen percent between 2010 and 2019.
The deal is expected to generate high single-digit earnings gains for Alaska Airlines within the first two years with no material impact on long-term balance sheet metrics, the company said.
After retiring the Airbus planes it inherited with its acquisition of Virgin America in 2016, Alaska Air has been only flying Boeing’s 737 planes since the end of September this year.
The combined company will operate a mixed fleet for now, Minicucci said, without ruling out future rationalisation.
It will be based in Seattle under his leadership, and Honolulu will become a key Alaska Airlines hub.
The International Association of Machinists and Aerospace Workers, a trade union representing 600,000 manufacturing and aerospace employees, said it will take all steps to protect the rights of members at both carriers. — Reuters