Alaska Air Group Inc. to Acquire Hawaiian Holdings Inc. in a $1.9 Billion Deal

Under the terms of the deal, Alaska will pay $18 per share in cash, presenting a substantial premium to Hawaiian Holdings’ closing share price of $4.86 on the preceding Friday.

Alaska Air Group Inc. has recently made a significant move in the aviation industry, announcing its agreement to acquire Hawaiian Holdings Inc. in a deal valued at $1.9 billion. This strategic acquisition, comprising cash and debt, challenges the Biden administration’s recent scepticism towards mergers in the airline sector, which has already affected one proposed partnership.

Under the terms of the deal, Alaska will pay $18 per share in cash, presenting a substantial premium to Hawaiian Holdings’ closing share price of $4.86 on the preceding Friday. This acquisition could serve as a vital lifeline for Hawaiian, whose stock has faced a considerable decline of more than 52% throughout the current year. The airline has grappled with the gradual return of tourism between Asia and Hawaii post-pandemic, coupled with increased competition in the Hawaii-to-mainland US market, notably from Southwest Airlines Co.

Alaska Air Group will function as the parent holding company, ensuring that both Alaska Airlines and Hawaiian Airlines will continue to operate under their distinct brands. Despite the Justice Department’s recent interventions against corporate combinations and the ongoing antitrust challenge to the JetBlue Airways Corp.’s acquisition of Spirit Airlines Inc., Alaska is moving forward with this acquisition, emphasizing its belief in the deal’s pro-competitive and pro-consumer nature.

Shane Tackett, Chief Financial Officer of Alaska, expressed confidence in the acquisition, stating, “We believe the facts will prevail that this is pro-competitive and pro-consumers.” He highlighted that Alaska and Hawaiian Airlines have only a 3% overlap on 12 routes, making them highly complementary businesses.

Federal regulators, particularly the Justice Department, have been actively intervening in airline mergers. They successfully dismantled an alliance between JetBlue and American Airlines in the northeastern United States, citing concerns about market concentration and its impact on consumer choice and pricing.

The potential benefits of the Alaska-Hawaiian deal include improved fares, although it may add complexity due to the addition of long-haul operations from Hawaii to US cities and Asia. Analysts from Bloomberg Intelligence noted that the limited overlap between the two airlines could enhance the odds of regulatory approval.

Alaska’s financial management of the deal appears solid, with a total price of $1.9 billion, including approximately $900 million of Hawaiian’s debt. Tackett expressed confidence in the financial aspects, stating, “We feel good about the price. We are getting a market leadership position in a really attractive premium market in Hawaiian.”

Post-acquisition, Alaska will dominate more than 50% of the Hawaiian market, which boasts an annual revenue of $8 billion. This dominance, along with an opportunity to establish a second hub in Honolulu, played a crucial role in Alaska’s decision to pursue the acquisition.

While this is not Alaska’s first experience with acquisitions, having acquired Virgin America Inc. in 2016, it does present a substantial move in the industry. The acquisition of Virgin America was a $2.6 billion deal that contributed to Alaska’s consolidation efforts within the aviation sector. The current CEO, Ben Minicucci, who has been with Alaska for almost 20 years, oversaw the operations during the Virgin America acquisition.

The Alaska-Hawaiian combination is expected to enhance Alaska’s earnings within two years of closing and yield annual run-rate savings of $235 million. The acquisition has received approval from the boards of both airlines and awaits the nod from Hawaiian Holdings shareholders and regulators. The completion of the deal is anticipated within the next 12 to 18 months.

Alaska Air Group’s move to acquire Hawaiian Holdings reflects the dynamic landscape of the airline industry, where companies are seeking strategic partnerships to navigate challenges posed by the pandemic and intense competition. This acquisition, if approved, could reshape Alaska’s market position and influence the competitive dynamics of the industry.