NEW YORK/SINGAPORE Singapore Airlines (SIAL.SI) said on Monday it was in talks with interested parties to sell its 49 percent stake in British carrier Virgin Atlantic, with sources revealing that Delta Air Lines Inc was among the potential suitors.
Delta, the second-largest U.S. airline by operating revenue after United Continental Holdings, wants to gain access to Virgin's landing rights at London's Heathrow airport, according to two people familiar with the matter.
Delta has been looking to acquire a Virgin stake for more than two years but previous talks broke down over price and other issues, and there is no guarantee that its recent discussions would result in a pact, the people said.
Singapore Airlines said in a brief statement it was in talks with interested parties but did not name them. It also cautioned that the discussions might not result in a deal.
The European Union requires that EU carriers be under European control, meaning Delta would need to involve an EU airline as a partner if it wanted majority control of Virgin.
Delta has been considering ways to partner with Air France-KLM, which could also take a stake in Virgin, one of the people said.
Virgin's British founder, Richard Branson, owns 51 percent of the airline. If Air France-KLM were to buy a small percentage of Branson's stake, then Virgin could continue to be European controlled.
Delta has made clear that it wants to expand at Heathrow, a lucrative hub for corporate passengers where landing slots are generally hard to acquire. Virgin is the second-largest carrier at Heathrow after IAG's (ICAG.L) British Airways.
Delta's SkyTeam global alliance, which includes Air France and 18 other airlines, trails its oneworld and Star Alliance counterparts in slot access at Heathrow.
"Delta now finds itself going up against the combination of American Airlines and British Airways," said George Hamlin, an aviation consultant in Fairfax, Virginia, referring to the two anchor members of the oneworld global alliance.
"British Airways brings along a feed from other destinations - both Europe and intercontinental - at Heathrow. Delta is basically a dead-end at this point."
VIRGIN SALE OPTION
Singapore Airlines (SIA) bought 49 percent of Virgin for 600 million pounds in 1999, but has been open to selling its stake in the loss-making carrier since at least mid-2011 when a price of $500-$600 million was being mooted in markets, a banking source familiar with the talks said at the time.
"When SIA bought Virgin, they expected to be given some approval to fly transatlantic routes out of London, but that was not given," said Andrew Orchard, a regional airlines analyst at CIMB Research.
At the same time, Singapore Airlines has been refocusing on its key markets where it is under pressure from budget airlines, launching its own budget carrier, Scoot, to ply Asian middle-distance routes and bolstering its Asian regional carrier, SilkAir.
Virgin, like other European carriers, has been battered by rising fuel prices and the euro zone crisis, and posted a loss of around 80 million pounds in its last full year.
"If Virgin is valued on an earnings basis, then it's hard to see SIA getting a good price. On the other hand, SIA is not desperate for cash and they probably won't sell it at a fire sale price," said CIMB's Orchard.
Branson, who set up Virgin Atlantic in 1984, has been weighing the airline's future for years and two years ago appointed Deutsche Bank to examine offers.
"We are always talking to many airlines on a number of different matters but we never comment on the details of these discussions," a Virgin Atlantic spokeswoman said on Sunday.
Delta declined to comment. Air France-KLM was not immediately available for comment outside regular business hours.
Heathrow, Europe's busiest airport, is operating at close to full capacity after Britain's coalition government blocked its expansion in 2010.
Virgin lost out in the battle to take over smaller UK carrier bmi last year to IAG, giving the owner of British Airways and Iberia more than 50 percent of the takeoff and landing slots at Heathrow.
However in November, Virgin won all of the Heathrow takeoff and landing slots that British Airways was forced to give up after the acquisition of bmi.
Virgin, which is hunting for a new chief executive after Steve Ridgway announced he would retire early next year, is not a member of a global airline alliance.
Aviation consultant Hamlin said a tie-up with Delta could give Virgin access to hundreds of markets on a one-stop connecting basis in the United States. For Delta, such a deal would help plug a weakness in its global network versus key competitors and make it a strong player at Heathrow.
"London obviously is the premier market and Heathrow is by and large the market leader. It's the lynchpin transatlantic market in terms of size and revenue, particularly premium traffic revenue," Hamlin said.
(Additional reporting by Anjuli Davies, Rhys Jones and Luke Jeffs in London, and Karen Jacobs in Atlanta; Editing by Alwyn Scott, Dale Hudson, Richard Pullin and Mark Bendeich)