ACQUISITION OF VIRGIN AMERICA INC.

9 Months Ended

Sep. 30, 2017

Business Combinations [Abstract]

ACQUISITION OF VIRGIN AMERICA INC.

ACQUISITION OF VIRGIN AMERICA

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 hub 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 guests living on the West Coast. The combined airline has approximately 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

The Company incurred pretax merger-related costs of $24 million and $22 million for the three months ended September 30, 2017 and 2016, respectively, and $88 million and $36 million for the nine months ended September 30, 2017 and 2016, respectively. 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. As of September 30, 2017 the fair values of property and equipment and certain liabilities, included in other accrued liabilities and other liabilities, goodwill, intangible assets and deferred income taxes have been prepared on a preliminary basis and are subject to further adjustments as the Company completes its analysis. There were no significant fair value adjustments made during the three and nine months ended September 30, 2017. The Company will finalize the amounts recognized by December 14, 2017.

Fair values of the assets acquired and the liabilities assumed as of the acquisition date of December 14, 2016, at September 30, 2017 and December 31, 2016 were as follows (in millions):

	September 30, 2017			December 31, 2016
Cash and cash equivalents	$	645		$	645
Receivables	54			44
Prepaid expenses and other current assets	18			16
Property and equipment—provisional	561			560
Intangible assets—provisional	141			143
Goodwill—provisional	1,934			1,934
Other assets	89			84
Total assets	3,442			3,426
Accounts payable	22			22
Accrued wages, vacation and payroll taxes	54			51
Air traffic liabilities	172			172
Other accrued liabilities—provisional	197			196
Current portion of long-term debt	125			125
Long-term debt, net of current portion	360			360
Deferred income taxes—provisional	(307		)	(304		)
Deferred revenue	126			126
Other liabilities—provisional	97			82
Total liabilities	846			830
Total purchase price	$	2,596		$	2,596