Alaska Air Group Inc. acquires Hawaiian Holdings Inc. in a $1.9 billion deal

Alaska Air Group Inc. has announced its acquisition of Hawaiian Holdings Inc. for a substantial $1.9 billion, encompassing existing debt. The deal positions Alaska Air as a bet on a beleaguered airline, securing valuable routes amidst ongoing challenges faced by U.S. antitrust regulators combating consolidation in the aviation sector.

Under the terms of the agreement, Alaska Air will pay $18 per share in cash, marking almost four times the closing price of Hawaiian's shares on Friday, 1 December 2023. The notable premium underscores the considerable downturn in Hawaiian's shares, attributed to factors such as the Maui wildfires, heightened fuel costs, and jet engine recall issues affecting some of Hawaiian's Airbus SE planes, leading to a 65% share price drop in 2022.

Anticipated to undergo antitrust scrutiny, similar to ongoing challenges in the sector, this acquisition aligns with recent regulatory skepticism surrounding JetBlue Airways Corp.'s proposed $3.8 billion acquisition of Spirit Airlines Inc.

While 80% of the U.S. aviation sector is dominated by United Airlines, American Airlines, Delta Air Lines, and Southwest Airlines, smaller airline mergers have faced regulatory suspicion. Despite this, Alaska Air, valued at $5.1 billion, expressed confidence in regulatory approval by the end of 2024. CEO Ben Minicucci highlighted that the two airlines only overlap on 12 of the 1,400 flights they collectively operate.

The acquisition positions Alaska Air to control over 50% of the market for Hawaii flights, a key destination for global tourists. CEO Ben Minicucci emphasized the enduring appeal of Hawaii for vacations, weddings, and anniversaries.

Defending its 270% premium offer, Alaska Air justified the deal by valuing Hawaiian at 0.7 times its annual revenue, significantly below the industry average of 1.7 times. The company expects a minimum of $235 million in annual savings.

Hawaiian, despite posting a net loss of $159.3 million in the first nine months of 2023, has a historical track record of profitability. Alaska Air highlighted Hawaiian's mid-teen percentage operating margins between 2010 and 2019 before recent challenges impacted its performance.

The deal is projected to yield high single-digit earnings gains for Alaska Airlines within the initial two years, with no substantial impact on long-term balance sheet metrics. The combined company, under Minicucci's leadership, will be headquartered in Seattle, USA, with Honolulu emerging as a crucial hub for Alaska Airlines.

As the International Association of Machinists and Aerospace Workers (IAM), a trade union representing 600,000 manufacturing and aerospace employees, pledges to protect the rights of members at both carriers, the aviation industry watches closely as Alaska Air navigates the acquisition terrain in the turbulent skies of airline consolidation.