SIA

SIA: Newswires say Delta Air Lines is nearing a deal to buy a 49% stake in Virgin Atlantic Airways from SIA and may pay less than US$500m. Inside sources said, the price range is US$300-500m and an agreement may be announced this week. This compares with Barclay’s sale estimate of US$200-300m, and Maybank KE Research’s estimate of S$1b. SIA paid £600m pounds for the Virgin Atlantic stake in 1999, or about US$966m now. A CLSA note estimates that after writing off goodwill associated with the invmt, and subsequent rounds of capital injections and accumulated losses, SIA’s carrying value is in the range of $0-50m. Delta and Virgin Atlantic may seek a JV on trans-Atlantic routes as part of the arrangement. Virgin Atlantic’s base at London Heathrow airport is a gateway for flights across the North Atlantic, the world’s most lucrative market for premium passengers. Analysts note that Heathrow access is what Delta is after. Virgin Atlantic, founded and majority-owned by U.K. billionaire Richard Branson, posted a pretax loss of £80.2m for FYFeb12, and has delayed adding planes. Virgin Atlantic operates about 40 planes, while Delta, the world’s second-largest carrier, has 725 aircraft in its main jet fleet. Representatives of Virgin Atlantic, SIA and Delta declined to comment about the sale process. SIA said last week that negotiations with “interested parties” were under way and may not result in a transaction. Some analysts have tipped potential special dividends from the proceeds should a sale eventuate, though others believe SIA would most likely adopt a wait-and-see approach with regards to the extra cash. The stock is +0.3% at $10.71. It trades at 1x P/B.