MS Morgan Stanley

Alaska Air Group Inc. said Friday that it agreed to give the U.S. Justice Department "some additional time" to complete its antitrust review of the carrier's planned merger with Virgin America Inc. But the carrier also said it is "confident" it will address any regulatory concerns and is "sticking to our timeline of closing" early in the fourth quarter.

The Seattle-based parent of Alaska Airlines declined to say how much more time.

The Justice Department declined to comment Friday.

Alaska in early April announced a $2.6 billion offer to acquire Virgin America. The two carriers in mid-May received a request for more information about the deal from federal antitrust regulators. As part of that commonplace "second request" for information, the two airlines agreed not to close their deal before Sept. 30.

In recent weeks, the carriers have said they were making good progress on fulfilling the request for more information and said they were confident they would be able to close early in the fourth quarter. San Francisco-based Virgin America in August sent to California warning under the Worker Adjustment and Retraining Notification Act that about 225 Virgin America back-office workers, about 8% of the total workforce, likely will be laid off if the deal closes, with reductions beginning Oct. 11 and running through June of next year.

News of the delay in closing was first reported Friday by Bloomberg. A day earlier, Bloomberg raised the possibility that the Justice Department might have concerns that the transaction would be a risk to competition, citing a meeting the week before with the chief of the department's antitrust division and other officials.

Alaska said Friday that "we continue to be on track to close" early in the fourth quarter. It said the regulatory review "is progressing as expected."

Morgan Stanley, in a research note Friday, said as the timeline winds down to a Justice Department decision, "investors have become increasingly concerned about the risk to approval. "Risk still seems low as (Alaska) anticipates a smooth process and the deal appears consumer-friendly," Morgan Stanley said. Deal or no deal, the firm said, it continues to view Alaska "as well positioned," and it reiterated its buy rating.

A postponement of the "timing agreement," the date before which the parties agree not to close their transaction, can easily be done, should the Justice Department feel the second request for information isn't fulfilled or if the government wants to broach possible concessions the two companies should make to win clearance.

The combination of Seattle-based Alaska Air Group and Virgin America would create the No. 5 U.S. airline by traffic, eclipsing JetBlue Airways Corp., which currently holds that spot. But the combined company, with only six routes that overlap, still would be very small compared with the largest four U.S. airlines, all expended by recent mergers, that control more than 80% of domestic capacity.

Alaska shares were down 0.3% at $65.82 and Virgin America shares were about flat at $53.21 on Friday, after tumbling Thursday.

Write to Susan Carey at susan.carey@wsj.com

(END) Dow Jones Newswires

September 23, 2016 14:55 ET (18:55 GMT)

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