Alaska Air and Virgin await merger approval

The Justice Department is making Alaska Air Group Inc. and Virgin America Inc. cool their jets on a $2.6 billion merger plan, fanning speculation that regulators believe consolidation in the industry has gone too far.

Alaska’s CEO Brad Tilden said that while he’s confident the department will rule in his favor, “there is a process at play” and “we’re not quite there yet.”

Although the regulatory approval process has taken longer than expected, he wouldn’t say whether Alaska has a backup plan if the merger isn’t approved. “I just don’t think we can go there,” Tilden said in an earnings call on Thursday.

A Justice Department spokesman declined to comment.

The combination would create the nation’s No. 5 airline by traffic, eclipsing JetBlue Airway Corp., which stopped bidding for San Francisco-based Virgin America as the price climbed.

Alaska Air and Virgin have few overlapping routes, and the merger would boost Alaska’s presence in Los Angeles and San Francisco.

Since 2008, two separate presidential administrations have cleared four megamergers among much larger carriers. Those deals created the four largest U.S. airlines, controlling more than 80 percent of domestic capacity.

J.P. Morgan analyst Jamie Baker said the department may be less amenable to another big merger, and could request concessions, such as asking Alaska to change code-share agreements with American Airlines Group Inc. and Delta Air Lines Inc. He estimated those relationships drive about $350 million in annual revenue to Alaska.

In a separate earnings call on Thursday, American’s chief executive, Doug Parker, said losing Alaska code shares “wouldn’t be a real impact.”

Virgin America may have to pay Alaska a $78.5 million breakup fee if the deal is terminated.

In May, the Justice Department made a routine “second request” for information about the deal. The airlines said at the time they wouldn’t close their deal before Sept. 30, then extended the deadline to Oct. 17.

That date came and went, and the two airlines said talks with the Justice Department were still going well. They said they were aiming to close the deal in the current quarter. Seattle-based Alaska Air has booked $36 million in one-time merger expenses in the past two quarters and has raised $1.5 billion in financing for the deal.

There are signs Washington regrets approving previous mergers and curtailing competition. The Justice Department in mid-2015 said it was probing possible illegal signaling at the largest four carriers, a possible effort to raise fares. The status of that investigation isn’t known, and the department has declined to comment.

In September, the chief of the Justice Department’s antitrust division, Renata Hesse, said many legislators and think tanks have called for tougher antitrust scrutiny of the industry. This week, the Transportation Department announced new rules designed to protect consumers from anticompetitive behavior by the major airlines.