What’s Holding Up Merger Of Alaska Airlines & Virgin America?

Image courtesy of (Agus Sutanto)/(GeorgeM757)

Alaska Airlines’ proposed $4 billion merger with Virgin America is taking longer than either airline anticipated. Days after the companies’ targeted merger completion date passed, federal regulators continue to probe the validity and affect the merger would have on competition. 

The Wall Street Journal reports that the Justice Department’s prolonged review of the merger could be a signal that regulators are worried that airline consolidation — which came under increased scrutiny last year — has taken too much of a toll on competition in the industry.

The Justice Department’s review process began shortly after Alaska proposed to Virgin America in April and continued when regulators asked for additional information on the deal in May.

Alaska and Virgin America previously anticipated closing the deal — which would create the fifth largest airline — on Sept. 30, but extended the deadline to Oct. 17.

While that date has now passed, officials with Alaska tell the WSJ that they aren’t too worried about the deal’s validity, noting that “there is a process at play” and it’s “not quite there yet.”

When asked if there was a back-up plan in case the merger fails regulatory scrutiny, Alaska CEO Brad Tilden said during an earnings call that he just “couldn’t go there.”

One thing is for sure though, if the deal falls through, Virgin America would have to pay Alaska a $78.5 million breakup fee.

The WSJ notes that the Justice Department’s prolonged review process suggests the regulators are worried that previous mega-mergers between American Airlines and U.S. Airways, and United and Continental weren’t good for competition and customer choice.

In fact, the Department announced last year that it would investigate whether airlines — American, United, Delta, and Southwest — colluded to keep ticket prices high by merging together.

Of course, the WSJ points out that the merger between Alaska and Virgin America is on a much smaller scale than those previously approved. Additionally, the two companies have few overlapping routes.

Still, analysts tell the WSJ that the Justice Department could request Alaska make concessions to win approval, such as changing code-share agreements with larger airlines.

Alaska Air, Virgin America Cool Their Jets, as They Await Deal’s Approval [The Wall Street Journal]

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