Alaska Air to Acquire Hawaiian Holdings for $1.9 Billion

Alaska Air Group has announced its intention to acquire Hawaiian Holdings for $1.9 billion, including debt, in a strategic move to tap into the potential of a troubled yet promising airline with lucrative routes. This acquisition comes amidst ongoing antitrust concerns in the U.S. aviation sector.

Alaska Air will pay $18 per share in cash for Hawaiian Holdings, representing a substantial premium due to the recent struggles faced by the Hawaiian airline. Factors such as the Maui wildfires, soaring fuel costs, and jet engine recall issues at some of Hawaiian’s Airbus planes have contributed to significant losses and a 65% drop in share price over the past year.

The deal is expected to undergo rigorous antitrust scrutiny, especially as U.S. regulators are already challenging JetBlue Airways proposed $3.8 billion acquisition of Spirit Airlines in court. Despite the industry being dominated by four major players, United Airlines, American Airlines, Delta Air Lines, and Southwest Airlines, small airline mergers have raised concerns among antitrust enforcers. Earlier this year, regulators successfully compelled JetBlue to abandon its three-year-old alliance with American Airlines.

Upon completion of the acquisition, Alaska Air, currently valued at $5.1 billion, will gain control of more than 50% of the market for Hawaii flights, one of the world’s top tourist destinations.

Alaska Air CEO Ben Minicucci expressed confidence that regulators would approve the deal by the end of 2024, citing limited overlap between the two airlines in their 1,400 collective flights.

The 270% premium offered by Alaska Air is seen as a cost-effective investment, with the deal valuing Hawaiian at just 0.7 times its annual revenue, significantly below the industry average of 1.7 times. Alaska Air anticipates a minimum of $235 million in annual savings through the merger.

The acquisition talks between Alaska Air and Hawaiian began over the summer, according to sources familiar with the matter.

Hawaiian reported a net loss of $159.3 million in the first nine months of 2023, primarily driven by lower air traffic due to the Maui wildfires, a 4% increase in jet fuel costs, and engine issues with its Airbus A321neo fleet manufactured by RTX Corp’s (RTX.N) Pratt & Whitney.

Despite recent challenges, Alaska Air highlighted Hawaiian’s history of profitability, with operating margins ranging from mid-teen percentages between 2010 and 2019.

The merger is expected to deliver high single-digit earnings gains for Alaska Airlines within the first two years, with no significant impact on long-term balance sheet metrics.

Alaska Air, which has been exclusively operating Boeing 737 planes since September, plans to maintain a mixed fleet for the time being, with the potential for future streamlining. The combined fleet of 331 aircraft will comprise various models, including Boeing 737s, 717s, 787s, A330s, and E175s, operated by Alaska Airlines, Horizon Air, and Hawaiian Airlines. Both carriers have outstanding orders, with Hawaiian Airlines intending to add nine converted A330-300s for Amazon.com operations and having a firm order for twelve 787-9s from Boeing. Alaska Air Group has orders for 737s and E175s.

Alaska Airlines Fleet:

• Boeing 737-700/800/900 In Service: 161, Orders: 0, Passenger Capacity: 124-178
• Boeing 737-8/9/10 Max In Service: 63, Orders: 134, Passenger Capacity: 159-189

Hawaiian Airlines Fleet:

• Airbus A321neo In Service: 18, Orders: 0, Passenger Capacity: 189
• Airbus A330-200 In Service: 24, Orders: 0, Passenger Capacity: 278
• Boeing 717-200 In Service: 19, Orders: 0, Passenger Capacity: 128
• Boeing 787-9 In Service: 0, Orders: 12, Passenger Capacity: 300, Deliveries from 2023 with options for 8 additional aircraft.

Alaska Airlines Cargo Fleet:

• Boeing 737-700F/800F In Service: 3, Orders: 1

Hawaiian Airlines Cargo Fleet:

• Airbus A330-300P2F In Service: 1, Orders: 9, Operated for Amazon Air

The combined company will be headquartered in Seattle under Minicucci’s leadership, while Honolulu will become a key hub for Alaska Airlines. The airline operates out of five hubs, with its primary hub being at Seattle–Tacoma International Airport. Alaska Airlines is a member of Oneworld, the third-largest airline alliance in the world, and it is owned by the Alaska Air Group.

Hawaiian Airlines is the tenth-largest commercial airline in the United States, and is based at Honolulu, Hawaii, and is the oldest American carrier that has never had a fatal accident or a hull loss throughout its history. The airline operates its main hub at Daniel K. Inouye International Airport on the island of Oʻahu and a secondary hub out of Kahului Airport on the island of Maui. The airline also maintained a crew base at Los Angeles International Airport. Hawaiian Airlines operates flights to Asia, American Samoa, Australia, French Polynesia, Hawaii, New Zealand, and the United States mainland. Hawaiian Airlines is owned by Hawaiian Holdings, Inc. of which Peter R. Ingram is the current president and chief executive officer.

The International Association of Machinists and Aerospace Workers (IAM), a trade union representing 600,000 manufacturing and aerospace employees, has pledged to protect the rights of members at both carriers throughout the acquisition process.

Sources: AirGuide Business airguide.info, bing.com, reuters.com