Alaska Air Group, which operates the highly profitable Alaska Airlines, said Wednesday that it will acquire Long Beach-based Jet America Airlines for $14 million.
Alaska Air, based in Seattle, said it had agreed to purchase all of the outstanding shares of Jet America for $3.25 a share.
Jet America, which will retain its name and employees, has been plagued by a lack of funds for expansion. "The company has been undercapitalized since it was started," John Severson, chief financial officer of the 5-year-old carrier, said in an interview.
"This has restricted us from realizing the growth necessary to reach critical mass," he added. "Now we will be able to better capitalize, realizing some of our growth potential."
A spokesman for Alaska Air said the acquisition was a "good business opportunity." He said Jet America had "established its own market identity in Southern California." He added that Alaska Air Group was attracted by Jet America's landing slots at the Long Beach Airport, which is capacity controlled.
He also called the Long Beach airline's slots at airports in Chicago and Washington "valuable assets."
"Alaska Air feels that although Jet America has had some losses of late, we can make them a profitable airline when they restructure their debt," he said.
The merger is subject to approval by the board of directors of Alaska Air Group, by Jet America's stockholders and by the Department of Transportation.
Also, the joint announcement by the two companies said, the Alaska Air tender offer is contingent on the restructuring of various lease and loan agreements covering Jet America aircraft in order to reduce operating costs.
Severson said 20% of Jet America's total expenses last year were aircraft ownership costs--lease costs, interest on loans and depreciation. Jet America hopes to lower that outlay by 4 to 5 percentage points, he said.
Serves 29 Cities
Alaska Airlines, which has reported profits for the last 13 years, has 37 aircraft and serves 29 cities in five Western states. It plays a significant role in Southern California, with flights to Los Angeles, Ontario, Long Beach, Palm Springs and Burbank. It also flies to Oakland and San Francisco.
It serves 13 communities in Alaska and has a major hub in Anchorage.
Jet America provides regularly scheduled service from Long Beach, Oakland and Orange County airports to Chicago, Dallas/Forth Worth, Detroit, St. Louis, Las Vegas and Washington. It operates six MD-80s, three of which are leased and three owned, and has four more on order. Two are to be delivered in September and the other two next summer.
The company reported second-quarter earnings Wednesday, posting a net loss of $2.4 million on operating revenue of $23.78 million.
The transaction is a "good deal," according to Scott Drysdale, an airline analyst based in Seattle with Birr, Wilson & Co., a San Francisco brokerage house.
Because the majority of Alaska Airline's business has been in Alaska, and "given that the economy in Alaska is probably going to be weak in the next couple of years because of what has happened to oil, I would expect that Alaska Air has been considering how to increase their business down here in the Lower 48.
"This will give them a southern anchor along the coast. They will have an increased presence in Southern California, and they can use that as a jumping off point to other markets in the Southwest."