Alaska Air Group, Inc. (NYSE:ALK) stock fell 1.17% (As on January 11, 11:13:06 AM UTC-4, Source: Google Finance) after Melius Research downgraded the company to Hold from Buy with an unchanged price target of $43. While strategically the purchase of Hawaiian Holdings (HA) makes sense and the firm suspects that when looking back on the deal “come 2027 the market will like it,” there is a long road to recovery at Hawaiian and the complexity of airline mergers is “a lot to handle in an already challenging environment for the airlines,” Melius argues.
Meanwhile, ALK has entered into a definitive agreement under which Alaska Airlines will acquire Hawaiian Airlines for $18.00 per share in cash, for a transaction value of approximately $1.9 billion, inclusive of $0.9 billion of Hawaiian Airlines net debt. The combined company will unlock more destinations for consumers and expand choice of critical air service options and access throughout the Pacific region, Continental United States and globally. The transaction is expected to enable a stronger platform for growth and competition in the U.S., as well as long-term job opportunities for employees, continued investment in local communities and environmental stewardship. The combination of complementary domestic, international, and cargo networks is positioned to enhance competition and expand choice for consumers on the West Coast and throughout the Hawaiian Islands. The acquisition is conditioned on required regulatory approvals, approval by Hawaiian Holdings, Inc. shareholders (which is expected to be sought in the first quarter of 2024), and other customary closing conditions.
On the other hand, the company has reported net income for the third quarter of 2023 under Generally Accepted Accounting Principles (GAAP) of $139 million, or $1.08 per share, compared to a net income of $40 million, or $0.31 per share, for the third quarter of 2022. It has recorded $2.8 billion in operating revenue and has generated $271 million in operating cash flow for the third quarter of 2023. The company has held $2.5 billion in unrestricted cash and marketable securities as of September 30, 2023. The company has ended the quarter with a debt-to-capitalization ratio of 48%, within the target range of 40% to 50%.
In addition, ALK has completed Alaska’s transition to an all-Boeing fleet with the retirement of its A321neo aircraft in September, and reached an agreement to sell the ten A321neos to American Airlines, with aircraft sales beginning in the fourth quarter of 2023.