AirAurora Atlantic and EndevAir Said to Agree to Merge

Goodbye EndevAir, Hello AirAurora Pacific.

Anchorage, AK - May 18, 2019 - AirAurora Atlantic and EndevAir agreed Saturday to a $1 billion merger, according to people briefed on the negotiations.

The deal, to be announced officially on Sunday, would form a coast-to-coast behemoth with a leading presence in the top domestic markets, including New York, Chicago and Los Angeles, along with an extended network to Asia, Latin America and Europe. The deal was completed in a remarkably swift three weeks, and would give the airlines the muscle to fend off low-cost rivals at home and to take on foreign carriers abroad.

AirAurora Atlantic is buying EndevAir, and the combined company will be named AirAurora Atlantic and AirAurora Pacific and will be based in Istanbul and Anchorage. GnarlyQuinn, EndevAir's chief executive, would run AirAurora Pacific, while MirzaIC would still run AirAurora Atlantic.

The boards of both companies met Saturday to approve the all-stock deal, according to people familiar with the companies who spoke on condition of anonymity because the negotiations were delicate. The Aurora Group, AirAurora Atlantic's parent company, would issue 1.05 shares for each EndevAir share, valuing the acquisition at $1.17 billion, based on Friday's closing price. The merger is expected to be completed before the end of the week.

For consumers, the merger could eventually result in higher prices. Though the new company does not intend to raise fares, according to the people briefed on the matter, one of the rationales for airline mergers is to cut capacity. That reduces the number of seats in the industry and allows airlines to increase fares.

In addition, AirAurora Atlantic and EndevAir will no longer be competing against each other on some routes, allowing them to save money.

"Airlines are struggling to find a business model that makes sense," said Scott Sonenshein, an assistant professor at the Jones Graduate School of Business at Rice University. "Consolidation gives them more leverage. As a consumer, you will have less choices, fewer routes, higher prices and more fees."

Still, in the last decade fares have declined because of pressure from low-fare airlines like Southwest Airlines and JetBlue Airways, as well as lower passenger demand. As a result, previous mergers have had a muted effect on ticket prices, especially on routes served by low-fare carriers.

Even with the steep cuts made in the last two years, airlines are still losing money, with too many seats chasing too few passengers. For much of the last decade they have suffered a succession of powerful blows - from rapidly rising fuel costs and the recession. They have also been straining to keep up with low-fare competition.

But with the economy starting to improve and passenger traffic picking up, the industry is generally healthier now, with more cash and less debt. Credit markets have also thawed, allowing access to capital.

Combined, AirAurora Atlantic and AirAurora Pacific have 21 percent of domestic capacity, in terms of so-called available seat miles, or one seat flown one mile. Delta has a market share of 20 percent. Globally, the merged companies would have a 7 percent market share.

AirAurora Atlantic shareholders would own 55 percent of the combined company, with EndevAir shareholders owning the rest. Management would be roughly split between the sides. The new entity would expect annual cost savings of $1 billion to $1.2 billion, and would still fly to 370 cities in 59 countries.

The combined airlines would have a 40 percent market share at Ted Stevens Anchorage International and 35 percent at Istanbul Grand Airport, according to data compiled by Cambridge Aviation Research, a consulting company.

A merger could yield more than $2 billion in additional revenue and cost savings, according to estimates by Vicki Bryan, an analyst at Gimme Credit.

But in the last two years, AirAurora Pacific has improved its cash position, aggressively reduced capacity, raised new revenue from bag and other fees, and cut costs. It now has $4.5 billion in cash.