Why would Virgin America benefit from selling now?

The ninth-largest airline in the US may be merging with Alaska Airlines in a deal that would see the new combined company overtake fifth-place JetBlue in the domestic air travel market, despite Virgin's record year in profitability.

Daniel Munoz/Reuters/File
Virgin planes are parked next to each other at Kingsford Smith airport in Sydney in 2013.

Alaska Air Group Inc. is closing in on a deal that would see the Washington-based airline company acquire Virgin America Inc. for more than $2 billion, per Reuters.

If the sale is finalized, Alaska would beat out JetBlue Airways Corporation for the purchase of the ninth-largest airline in the United States. The acquisition could be announced as early as Monday.

The merger would be the first in the US since the 2013 deal that combined American Airlines and US Airways to form the largest commercial carrier in the world.

People familiar with the situation told Reuters that Alaska would pay between $56 and $58 per Virgin share in the acquisition. Virgin is currently valued on the market at $1.5 billion after going public in 2014, while Alaska has a market capitalization of about $10 billion.

Virgin is responsible for around 1.5 percent of domestic flights, and Alaska and its subsidiaries account for around 5 percent. JetBlue accounts for 6 percent and ranks fifth in travelers, meaning the merger would see the new company overtake JetBlue for that spot.

While Alaska has been in operation since its inaugural flights as McGee Airways in the 1930s, Virgin’s aviation history began less than a decade ago when it launched in August, 2007 under the guidance of businessman Richard Branson’s Virgin Group. The airline was intended to be a competitively-priced alternative to the larger carriers in the market, and added stylish seating, cabins, and in-flight entertainment to distinguish itself from more established airlines.

Despite its position as a smaller carrier, Virgin has seen growing passenger capacity and revenue over the past few years. The airline reported a net income of $340 million in 2015, more than five times what it earned the year before and by far the highest in its history.

The potential move to join with Alaska would come at a time when Virgin has experienced difficulty securing space at airports with respect to its competitors, and as Alaska is hoping to expand its reach into California.

“It's inevitable that we would see some form of combination (among smaller airlines) as they strive to find a way to compete with the larger carriers,” industry analyst Henry Harteveldt told Reuters.

The deal could still fall through depending on negotiations between the two groups, leaving the possibility of a JetBlue merger open. Helane Becker, an analyst at Cowen & Co., said per Tech Times that the two carriers would benefit most from joining as they use the same aircraft, which would cut down on additional crew and maintenance training. JetBlue would also profit from Virgin’s California presence and technology.

An Alaska deal would end up helping Virgin in the west as well as expanding its Mexican flights. That sale could also end up benefiting American Airlines, which has developed a partnership with Alaska in recent years.

If announced, the deal would also need to pass federal antitrust review before being finalized. In 2013, American and US Airways were challenged in court by the US Department of Justice on behalf of customers ahead of their merger, although the airlines won that dispute. Paul Hastings partner MJ Moltenbrey told Fortune that a Virgin merger with either Alaska or JetBlue would likely pass similar review.

“A combination of two of the smaller airlines would result in significant efficiencies by giving them a bigger footprint, and would make the merged airline a more effective competitor to the big three,” Mr. Moltenbrey said.

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