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Delta Stake in Virgin Atlantic Makes Headway

Delta Stake in Virgin Atlantic Makes Headway

Delta Air Lines Inc. DAL -0.71% on Thursday cleared two of the three regulatory hurdles needed to complete its planned purchase of a minority stake in Virgin Atlantic and launch an extensive transatlantic joint venture with the U.K.-based carrier.

The European Commission and the U.S. Department of Justice completed their respective probes and waved through the combination without any of the conditions that have been attached to some previous airline tie-ups.

The planned deal would cement Delta’s position as the largest airline on transatlantic routes, and close the gap with the partnership of British Airways IAG.MC -3.02% and American Airlines on flights between London Heathrow and New York’s JFK airports, a rich source of profitable business traffic.

Delta and Virgin Atlantic Airways Ltd. still have to secure antitrust approval from the U.S. Department of Transportation for their pact to combine flying, marketing and revenue from transatlantic flights.

The department, which must make a decision by Nov. 30, said Thursday that it is reviewing the application. Last week, the department approved the airlines’ request to code share, or cross-selling seats on one another’s flights.

Delta’s move in December to buy 49% of Virgin Atlantic from Singapore Airlines Ltd.C6L.SG -0.80% was designed to address its competitive weakness at Heathrow, where it lags behind AMR Corp.’s AAMRQ -4.69% American and United Airlines. It will also leverage Delta’s expanding presence at JFK.

Virgin and Delta said in their application for antitrust immunity that they would coordinate schedules in New York to create a “new high quality, high frequency product that can more effectively compete with the 15 daily” flights jointly operated by American and British Airways to Heathrow.

BA and American control more than 50% of the seats between New York and Heathrow, according to Buckingham Research Group. Delta now has 9% of the market, but would boost that to 36% through the Virgin joint venture, leapfrogging the 13% held by United Continental Holdings Inc. UAL -3.53%

Delta, the world’s second-largest carrier by traffic after United, also plans to start service between Seattle and Heathrow if the joint venture is approved, according to the application. It said Virgin Atlantic would make the flight viable with a sales presence and improved connecting network in London. That flight would bolster Delta’s efforts to build a mini-hub in Seattle, where it recently added nonstop service to Shanghai and Tokyo.

Atlanta-based Delta has had mixed fortunes in expanding on its own from Heathrow. Service to Miami launched in 2011 lasted little more than a year.

The Miami flight and another to Boston were started with takeoff and landing slots at congested Heathrow that Delta gained from BA and American as part of the European Commission’s approval of those airlines’ joint venture.

The commission said Thursday that in the two transatlantic markets where Delta and Virgin compete—from London to Boston and New York—there would still be “significant competitive constraint” from “sufficiently strong players,” mainly American and BA, which is a unit of International Consolidated Airlines Group SA.

Delta said that in the joint venture it would split revenue with Virgin Atlantic on all flights between North America and the U.K. Under that agreement, Delta would effectively add nonstop service between Heathrow and six North American cities: Vancouver, Los Angeles, San Francisco, Chicago, Miami and Washington, D.C., according to Innovata LLC, an aviation data provider.

Virgin Atlantic remains outside any of the three global airline marketing alliances. On Thursday, Delta said there are no current plans to add Virgin Atlantic to its SkyTeam grouping. Virgin Atlantic declined to comment.

The partnership with Delta also gives a financial boost to Virgin Atlantic, which has struggled recently. The airline’s pretax loss widened to £93 million, or about $144 million, in the fiscal year that ended in February from a deficit of £80.2 million a year earlier.

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