Delta's dilemma: To buy Singapore's 49% share in Virgin Atlantic....or not.

Reports that Delta is considering buying Singapore Airlines' 49% share in Virgin Atlantic have set the commentators speculating and scribbling.  Some go as far as to eulogise that it would be a wonderful deal for the Americans and is one in a lifetime which they shouldn't miss.

 What are the realities?

 -Singapore Airlines have been seeking a buyer for their 49% share in Virgin Atlantic  for some time .They bought in 1999. At the time many felt that the price of $600 million was at the high end of the possible range and that the Singaporeans were uncharacteristically charmed into signing when they should have stuck their more usual line as tough and canny negtiators. Possibly it was a defensive move to keep the European carrier out of the hands of others although it is difficult to see exactly who the Singaporeans might have feared back then.

- In 1999 there were all sorts of thoughts about possible synergies for both airlines and the emergence maybe of Virgin Atlantic as a major player in Asia . Commentators envisaged lots of codeshares (for what they're worth,- another issue to which we will return another day) and passengers flowing freely in  many directions betwen and via the two carriers. In fact a quick scan of the OAG reveals a Virgin code on SQ's Singapore-London flights but little or nothing else. Apart from adding Shanghai and extending their Hong Kong service through to Sydney Virgin have not used the deal as a springboard to add to its Asian network either with its own aircraft or a plethora of regional codeshares beyond Singapore but maybe SQ themselves weren't too keen on promoting them as a rival anyway.

-Singapore probably thought that 49% would buy them significant influence on Virgin Atlantic, and maybe some convergence of the two very successful but very different brands. Despite both having a declared comitment to customer service and style there is little similarity in how the two set out to achieve it. Their market positioning is very different and there is not even a visual link between the their liveries or corporate identities. If Singapore did think they would achieve something like a European clone they must be disappointed and may now wonder what they got from splashing out on 49% when 10% might have achieved just as much,-or little.

-If then Delta does buy SQ's share it wouldn't of itself give them control of anything. It would make it very much in their interest to flow interline business on to Virgin Atlantic in London so as to boost its overall revenue and thereby hopefully their dividend although it would by no means guarantee it if Virgin Atlantic's Board decided to keep the money in the bank or spend it on other things. The 49%would of itself not secure the ability to win any board room debate

-Similarly the minority share would not open the way to access to Virgin Atlantic's Heathrow slot portfolio. It might buy Delta preference if any were available for sale (most unlikely) or short term lease (pretty unlikely) but without specific pre-agreement there would be no guarantee that they would get them against a higher bidder.

- Presumably therefore Delta is talking not only to Singapore Airlines but also to Virgin Atlantic itself about what undertakings it is prepared to give to add value,- that's control of some thing or things,- to make the purchase more attractive. The outcome of such discussions would be an interesting poker game and depend on who in the triangle of Delta/Virgin Atlantic/Singapore Airlines wants what most. Meanwhile the other poker game would be over price. That depends on how eager SQ is to sell and how much Delta is prepared to pay and for what. The answers to these two thought bubbles could be a) "very" and b), naturally, "as little as possible and if not we will walk away". In that case Delta has a good hand in both the games.  There is also the fact that in relative terms Virgin Atlantic is still a niche player on the North Atlantic, squeezed by other carriers and alliance groupings . That adds pressure on them to push their way onto a bigger stage. That's not to say that continuing to go it alone isn't a continuing option but apart from frequencies and range of destinations served the (anticompetitive) power of the major frequent flyer programmes also squeezes even the most innovative of smaller players.

-The toughest and most significant discussions in all this are therefore likely to be those between Delta and Virgin Atlantic itself about exactly what they would get for their money if they bought SQ's share. Both companies are no slouches in the negotiating field. As well as poker, arm wrestling is on.

Footnote: Some commentators are suggesting that Delta, having broken cover, may not be the only game in town and there may be competing bids from Air France/KLM (short of cash), various of the Gulf fraternity (why,- what's in it for them?) and maybe others. From here it looks more likely that ,having made no moves up to now, any others will sit on their thumbs and see how this one plays out and only enter the fray if Delta walks away , Singapore Airlines become desparate to release cash by selling and Virgin Atlantic decide that they have to find a new substantial investor.