Sir Richard Branson’s reign over Virgin Atlantic has come to an end.
Branson is selling part of his stake to Air France-KLM, as part of a combination of deals that will create a new globally-oriented, four-way alliance that also includes China Eastern Airlines and Virgin’s existing partner, Delta Air Lines.
In a letter to staff, Branson wrote that “It’s strange to think” that the airline he founded in 1984 “has now been flying for half my lifetime.” While Virgin Atlantic’s joint venture with Delta helped them to compete with the British Airways-American Airlines alliance in recent years, Branson explained, the network and flight connections have remained limited. The new four-way alliance tries to address this, he added.
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Air France-KLM is paying Branson’s Virgin Group 220 million pounds ($286 million) for a 31% stake in the venture. Delta will retain 49% control, leaving Virgin with 20%. Branson will remain chairman of the airline and the airline is expected to continue to fly under the Virgin brand. At the same time, Delta and China Eastern will pump some 375 million euros ($439 million each into Air France-KLM, both in return for a 10% stake. That will cut the French government’s stake in the group to 14% from 18%.
All of the transactions are subject to regulatory approval.
The partnership will increase the number of non-stop flights between the U.S. and Europe to more than 300 daily, from hubs including New York’s JFK airport, Los Angeles’s LAX, Atlanta, London Heathrow and Amsterdam. The airlines will also join up their frequent flyer schemes. The move is hoped to help Virgin and its partners face the competition from traditional rival British Airways, as well as newer budget carriers, such as Norwegian Air Shuttle and (as of yesterday) Primera.
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But while Branson may have surrendered control of his airline, he still has something to look forward to. Barring some unforeseen catastrophe, the investments make it a near certainty that Virgin will still be around at the end of the year, enabling him to collect on one of the more eye-catching business bets of recent years. When Branson sold 49% of Virgin Atlantic to Delta in 2012, the then-head of Virgin’s arch-rival British Airways Willie Walsh said he would accept “a knee in the groin” from Branson if Virgin lasted another five years.
“Willie, that five year point is up this December. And Virgin Atlantic is still flying strong!” Branson said in his letter. Walsh, who is now CEO of BA parent International Airlines Group, hasn’t yet responded.