Alaska Airlines acquired Virgin America in 2016 and did away with the Virgin brand. Virgin had a nicer first class product, so it was sad to see planes reconfigured. Alaska committed to its Boeing fleet, in contrast to Virgin’s Airbus narrowbodies.
What did Alaska get out of the deal? Slots and gates at congested airports, many of which Alaska has walked away from or underutilized. And they overpaid in a $2.6 billion deal for the privilege, having outbid JetBlue. Alaska does, though, inherit a San Francisco hub which is valuable and a customer base for its Bank of America co-brand credit card.
Alaska was never going to use the Virgin America brand. However with new, grander ambitions I thought a renaming was in order – something like ‘Alaska America’. Instead Virgin was largely folded into Alaska’s existing brand and operation.
Virgin Group takes issue with how it all went down. They cashed in, seeing their shares in Virgin America acquired at a premium to market. But they say they’re owed $160 million – a minimum brand license payment of $8 million per year through 2039 from the point that the carrier stopped using the name in 2019.
- Virgin says they’re owed the money, whether the name is used or not. Alaska still has the right to use the brand, and no one else can use the brand in the U.S. [Virgin can’t start a competitor either way, Virgin America had to jump through enormous hoops to demonstrate that it was U.S.-owned and controlled and not violating protectionist laws here.]
- Alaska says that’s a tortured reading of the contract, and one that would never have allowed Virgin America to operate if it were true because it would have run afoul of conditions set on the airline’s launch which required it be able to operate fully free of Virgin.
Alaska says the Virgin brand is useless to it, and it’s “a bizarre” reading of the agreement to require payments after a change in control and cessation of use of the brand.
Virgin says Alaska still gets value from the brand since it excludes competitors from using it, something that would be nearly impossible, though if it were still valuable Alaska’s position would imply that Virgin could re-license the name and capture value from it. Indeed Richard Branson pledged he would do just that, which suggests that Branson certainly thought use of the trademark reverted to Virgin. (Indeed, he repeated the claim multiple times.)
The case is being litigated in Commercial Court/ of the High Court of Justice of England and Wales. It costs Virgin only legal fees here, with significant upside either winning the case in front of a home court, or extracting a settlement.
They should create a porn site called Virgin America and use that branding on everything in the clips. They will beg Alaska to stop.
Where does this merger rank among the worst airline mergers of all time? I thought Alaska was going to take Virgin’s successful transcon product and schedule and ramp it up to the next level. Instead they retreated.
Seventy to eighty percent of all corporate combinations fail to meet anticipated financial objectives.
Litigated in the Commercial Court/of High Court of Justice of England and Wales? Big LOL at that.
Foreign courts have ZERO jurisdiction over US domestic affairs. Go pound sand, VX.
It is fairly commonly accepted in real life that AS bought Virgin America for 2 reasons:
1. to keep B6, which was also bidding for Virgin America, off the west coast – and AS succeeded at that goal even if it has been very costly for AS. If B6 fumbles the NK merger -assuming it gets approved – the value to AS for the Virgin America acquisition – will improve.
2. AS was attempting to counter DL’s growing presence in the PNW as DL established its own SEA hub. AS would have been much less significant on the national stage. Years later, those fears were overblown. DL has its SEA hub which is not at all equal to AS’ – DL is stronger than AS in some markets (including international) while AS is still a force in many west coast domestic markets.
As for the specific legal clash here, I am not a lawyer and don’t play one on TV and others would do well to not pass judgment without the appropriate facts and knowledge. It is very possible that there is a fairly significant paperwork trail that Virgin Group has to rely on and which AS has not countered. It is generally not a good idea to ignore bills you have received. It is also unlikely that AS’ argument equating a licensing agreement to Virgin Group not being allowed to control Virgin America.
I suspect this will get settled with AS paying some amount that is far less than Virgin Group is asking but also releasing the Virgin Group to use the Virgin name much sooner than the end of the licensing agreement. It is precisely because there is no ability for them to license another US based airline that they don’t want to shut off the tap any sooner than they have to.
If Virgin wins…
Continental should sue United
US (Airways) should sue American
etc.
@Ed – not true. If the contract was signed by Alaska in that jurisdiction, Alaska will have to fight it in that jurisdiction. And if Virgin gets a judgment in their favor, then there’s a prescribed process for them to collect it, even if Alaska has no operations whatsoever in the UK. While Alaska could fight the collection judgment in the US, it’s fairly unusual for them to be set aside unless there was something significantly wrong with the UK judgment.
Easy to solve, Alaska release all rights to Virgin America naming, etc. I am guessing there are other reasons why Branson wants the name “VirginAmerica” back?
rjb,
Your suggested form of brand disparagement by Alaska Airlines would probably invite more litigation and potentially cost Alaska Airlines more money than if it just paid to relinquish the contract license rights to the Virgin brand, rights which Alaska Airlines arguably has and for which it would have to pay for damages arising from intentional damaging of the brand if so.
I want VA back. Period end of story. They were the best domestic airline to fly in since TWA and PanAm in the 70’s and 80’s and compared to them the rest of the airlines are offering chicken coops not comfortable flights. If I had my way the deal would be voided now and VA planes would once again be taking to the air.