Judge Overseeing Lawsuit Over Alaska Air, Virgin America Merger to Move Ahead With Trial

The proposed merger of Alaska Air Group Inc. and Virgin America Inc., which is awaiting Justice Department clearance, ran into a new complication this week from a federal judge who is overseeing a consumer lawsuit to block the $2.6 billion transaction on antitrust grounds.

A group of 41 fliers and travel agents sued Alaska Air Group, parent of Alaska Airlines, in September in U.S. District Court in San Francisco, seeking to derail the transaction on grounds it would lessen airline competition by removing Virgin America as a significant force in the marketplace. This could cause fares and airline fees to rise, the lawsuit said.

U.S. District Judge William Alsup, in an order filed Wednesday said he has taken the plaintiff's motion for a preliminary injunction under submission. He said he plans to have a trial on the merger as soon as the Justice Department makes its decision.

Judge Alsup followed up Thursday by ordering Alaska Air to give the court and the plaintiffs at least seven calendar days' notice before closing the transaction. "In all events, any consummation will be subject to divestiture," he orders. Bloomberg News previously reported on the judge's orders.

Divestiture could mean concessions the carriers could be required to make to win regulatory approval and the quell worries that the deal would be anticompetitive. Some analysts have suggested that Seattle-based Alaska might have to reduce or unwind its code-sharing agreements with American Airlines Group Inc. or Delta Air Lines Inc. Others believe the pair may have to give up gates at congested airports to rival airlines.

In a statement Friday, Alaska and Virgin America said they disagree with the plaintiffs and will defend their deal. The two carriers said the merger would result in a combined airline with just 6% of U.S. market share, compared with 84% controlled by the four biggest U.S. airlines, all of which have enlarged through mergers in recent years.

Alaska and San Francisco-based Virgin America, which isn't a defendant in the lawsuit, both have low costs and offer relative low fares. "So the suggestion that this (deal) is anticompetitive is inaccurate," the two companies said. "Unfortunately, lawsuits such as this are not uncommon with mergers," they added.

The lead plaintiff's attorney is Joseph Alioto, a San Francisco antitrust lawyer who has brought antitrust lawsuits against several prior airline mergers over the years. In the latest lawsuit, Mr. Alioto and his fellow lawyers at two other firms asked the court to enjoin the two carriers from closing their transaction.

The Justice Department has declined to comment on its review of the merger, which has been extended to give regulators more time to study it.

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

(END) Dow Jones Newswires

October 21, 2016 16:15 ET (20:15 GMT)

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