The latest on acquisition talks between Alaska Air Group and Virgin America.
Update 3 a.m. Monday, April 4:
Alaska Airlines and Virgin America have struck a $2.6 billion deal.
Virgin America, founded on the premise of being a cool airline shuttling people from New York to California in style, is near a deal to sell itself to a competitor originally created to ferry people 330 miles across Alaska.
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Alaska Airlines is poised to buy Virgin for about $2 billion, a person briefed on the matter said Saturday, describing a move that would unite two popular smaller airlines in the latest round of consolidation within the industry.
Should Alaska, which is based in Seattle, reach an agreement to acquire Virgin — details were still being negotiated and could still fall apart — an announcement could come as soon as Monday, said the person, who was not authorized to speak about the matter.
A sale of Virgin would be the latest instance of deal-making in an industry that has shrunk drastically over the past decade, concentrating power in the hands of a few major airlines.
Virgin, Alaska and JetBlue compete in a tier below the giants: American, Delta and United. When Virgin put itself up for sale this year, it drew preliminary interest from a host of potential suitors. But the biggest domestic airlines, constrained by antitrust regulations, soon gave way to smaller competitors eager to expand their networks.
Alaska and JetBlue squared off in the final round of bidding, with official offers coming in recent days. But Alaska, one of the rare airlines to hold an investment-grade credit rating and one with more cash on its books than some others, appears to have triumphed.
During the contest, Alaska also argued that it would need to divest fewer airport slots than JetBlue would, since its network has fewer overlaps with Virgin’s, according to the person briefed on the matter.
Any transaction will probably draw scrutiny from government regulators, who have become more suspicious of airline mergers because of the potential for them to result in higher prices. The Justice Department went to court to challenge American’s takeover of US Airways, although it lost that legal fight.
A sale of Virgin would mean a quick end to independence for an airline that began flying more than a decade ago. The company was the brainchild of Richard Branson, the outspoken billionaire behind the Virgin empire of brands.
The idea behind Virgin was to create a new lower-cost carrier with a higher level of service than traditional airlines provided, furnishing its planes with fancy purple lighting, onboard Wi-Fi and interactive video displays.
The company went public in the fall of 2014, and as of Friday’s market close it was valued at about $1.5 billion.
While the company shares a name with Branson’s kingdom, the British mogul holds only a 31 percent stake in the airline. Hedge fund Cyrus Capital Partners owns 24 percent.
Virgin sometimes complained that it had trouble competing against bigger rivals for necessary space at desirable airports, potentially prompting the company to consider becoming part of a larger rival.
Acquiring Virgin would give Alaska — which despite its name and origins has been based in Seattle for decades — an opportunity to expand into the lucrative California market, particularly in the hubs of San Francisco and Los Angeles.
Alaska’s capacity of seats offered at San Francisco International Airport would rise to about 15 percent from 4 percent, while its capacity at Los Angeles International Airport would increase to 11 percent from 5 percent.
Alaska has steadily moved to expand its network beyond the West Coast, pushing into transcontinental flights as well as those to Hawaii. But it has faced renewed pressure in its hometown Seattle from a nominal partner, Delta, which has sought to make the Pacific Northwest a major hub for its own network.
The parent company of Alaska, which also owns Horizon Air, is the country’s sixth-biggest airline by passenger count, flying 32 million passengers last year.
JetBlue, which was created by a former executive of Southwest Airlines, is the country’s fifth-biggest airline, moving about 35 million passengers. Virgin America, is much smaller and newer, having been founded in 2007. The company, based in the San Francisco area, has a fleet of about 60 single-aisle Airbus planes that fly to 23 airports in the U.S. and Mexico.
Airlines have been emboldened in part by lower oil prices, which helped them report stronger earnings last year. Virgin America generated almost six times more net income — $340 million — in 2015, than in the prior year and had only about $308 million in debt, according to data compiled by S&P Capital IQ.
News of the state of the discussions was reported earlier by The Wall Street Journal.