Alaska Air Group Inc. is close to buying Virgin America Inc., the carrier backed by billionaire Richard Branson, according to people with knowledge of the matter.
While negotiations are advanced, the deal could still fall apart and a last-minute bid from JetBlue Airways Corp. may be possible, said the people, who asked not to be identified because the details arenâ€™t public. JetBlue and Alaska Air made offers after Virgin America put itself up for sale, people familiar with the matter said last week.
The combination would extend a consolidation wave that began in 2005 and eventually swept up five of the 10 biggest US carriers. Four operators â€” American Airlines Group Inc., United Continental Holdings Inc., Delta Air Lines Inc. and Southwest Airlines Co. â€” now control 80 percent of the US market. A second tier includes JetBlue, Alaska and Virgin America, plus a group of ultra-discounters, such as Spirit Airlines Inc.
Virgin Americaâ€™s market value was $1.37 billion as of March 22, a day before Bloomberg News reported that the Burlingame, California-based company was reaching out to potential buyers. Bransonâ€™s fund, which is known as VX Holdings, and Cyrus Capital Partners own 54 percent of Virgin America, according to data compiled by Bloomberg.
Even with a run-up in Virgin Americaâ€™s value to $1.47 billion as of April 1, Alaska Airâ€™s $10.2 billion dwarfs that figure. Adding the smaller carrier would let Seattle-based Alaska bulk up its West Coast network, folding in Virgin America operations that include the regionâ€™s two biggest business centers, Los Angeles and San Francisco.
While a combined Alaska-Virgin America wouldnâ€™t affect the size rankings at the top of the US industry, the new carrier would surpass JetBlue for fifth place, based on passenger traffic. Alaska is now No. 6, and Virgin America is No. 12, according to the US Bureau of Transportation Statistics. American is No. 1. Regulatory scrutiny may be heavy, in light of US Justice Department challenges to the 2013 merger of American Airlines and US Airways, the industryâ€™s last tie-up, and a proposed swap of takeoff and landing rights between Delta and United at New Jerseyâ€™s Newark Liberty International Airport.
Virgin America began flying in 2007, letting Branson achieve his goal of expanding the Virgin brand into the worldâ€™s largest air-travel market. Getting there wasnâ€™t easy.
Concerned that Bransonâ€™s status as a UK citizen would give a foreigner too much say in a US airline, regulators required Virgin Group to give up a board seat, put its stake under a trustee and name a new chief executive officer before letting Virgin America begin flights. The carrier hired David Cush away from American for the job.
Virgin America has used Bransonâ€™s high profile to gain attention when it adds service to new cities, as it did recently with Denver, and when lobbying to gain airport space, as it did at Dallas Love Field. That connection carried over into the nurturing of Virgin Americaâ€™s boutique airline brand, leaving Alaska with the challenge of whether to dismantle that creation.