ACQUISITION OF VIRGIN AMERICA INC.

3 Months Ended

Mar. 31, 2017

Business Combinations [Abstract]

ACQUISITION OF VIRGIN AMERICA INC.

ACQUISITION OF VIRGIN AMERICA INC.

Virgin America

On December 14, 2016, the Company acquired 100% of the outstanding common shares and voting interest of Virgin America for $57 per share, or total cash consideration of $2.6 billion. Virgin America offers scheduled air transportation throughout the United States and Mexico primarily from its focus cities of Los Angeles, San Francisco and, to a lesser extent, Dallas Love Field, to other major business and leisure destinations in North America. The Company believes the acquisition of Virgin America will provide broader national reach and position it to better serve people living on the West Coast. The combined airline has 1,200 daily departures and leverages Alaska's strength in the Pacific Northwest with Virgin America's strength in California. The Company believes that combining loyalty programs and networks will provide greater benefits for its guests and expand its international partner portfolio, giving guests an even more expansive global reach.

Merger-related costs

For the three months ended March 31, 2017, the Company incurred pretax merger-related costs of $40 million. Costs classified as merger-related are directly attributable to merger activities and are recorded as "Special items—merger-related costs" within the statements of operations. The Company expects to continue to incur merger-related costs in the future as the integration continues.

Fair values of the assets acquired and the liabilities assumed

The transaction has been accounted for as a business combination using the acquisition method of accounting, which requires, among other things, assets acquired and liabilities assumed to be recognized on the balance sheet at their fair values as of the acquisition date. The purchase price allocation has been prepared on a preliminary basis and is subject to further adjustments as additional information becomes available concerning the fair value of the assets acquired and liabilities assumed. There were no significant fair value adjustments made during the three months ended March 31, 2017. The Company expects to continue obtaining information to assist in determining the fair values of the net assets acquired and will finalize the amounts recognized by December 14, 2017.

Provisional fair values of the assets acquired and the liabilities assumed as of the acquisition date, December 14, 2016, as of March 31, 2017 and December 31, 2016 were as follows:

(in millions)	March 31, 2017			December 31, 2016
Cash and cash equivalents	$	645		$	645
Receivables	44			44
Prepaid expenses and other current assets	16			16
Property and equipment	561			560
Intangible assets	141			143
Goodwill	1,942			1,934
Other assets	84			84
Total assets	3,433			3,426
Accounts payable	22			22
Accrued wages, vacation and payroll taxes	50			51
Air traffic liabilities	172			172
Other accrued liabilities	198			196
Current portion of long-term debt	125			125
Long-term debt, net of current portion	360			360
Deferred income taxes	(308		)	(304		)
Deferred revenue	126			126
Other liabilities	92			82
Total liabilities	837			830
Total purchase price	$	2,596		$	2,596