Alaska Air Group Inc. and Virgin America Inc. pleaded their case for their $2.6 billion merger to top Justice Department officials last week, according to people familiar with the matter, an indication that negotiations are in their final stages over whether the government allows the deal to proceed.

The airlines met with antitrust division chief Renata Hesse and other officials conducting the review to address government concerns that the combination could hurt competition, said one of the people. Such top-level meetings usually signal that the antitrust division has worries about a merger that could lead to a lawsuit to block it.

Time is running short for the government to act. The airlines have agreed not to close until Sept. 30, effectively setting a deadline for the Justice Department to give a nod to the deal or seek to block it.

Virgin America fell the most intraday in seven months Thursday, posting the biggest decline since before the carrier agreed to be acquired by Alaska. Shares were down 4.6 percent to $53.07 at 3:33 p.m.

Effective Competitor

It was unclear whether the companies have offered to sell assets to resolve the department’s concerns or whether they may agree to extend their deadline. The airlines argue that by combining they will be a more effective competitor to the biggest carriers in the U.S., one of the people said.

“We still expect the merger to close in the fourth quarter, as we always have,” said Dave Arnold, a spokesman for Virgin America. Spokespeople for Alaska and the Justice Department declined to comment.

Alaska’s agreement to buy Virgin America, announced in April, would extend a round of consolidation that has shrunk the number of carriers in the U.S. airline industry since 2005, leaving the top four operators controlling 80 percent of the market. This is the first substantial airline merger since the Justice Department sued to block US Airways Group’s takeover of American Airlines in 2013, a case that ultimately settled after the carriers agreed to sell airport assets to low-fare competitors. The government’s decision on this tie-up will be closely watched for its view on the current state of competition in the airline industry.

Airline Concentration

Bill Baer, who preceded Hesse as chief of the antitrust division and who still oversees it as the Justice Department’s No. 3 official, is keeping a close eye on concentration in the airline industry. He started an investigation last year into possible improper collusion between carriers over seating capacity, a crucial factor in determining fares. He also sued United Continental Holdings Inc., seeking to block its acquisition of takeoff-and-landing rights from Delta Air Lines Inc. at New Jersey’s Newark Liberty International Airport, saying the deal threatened to raise fares. United dropped its plan to buy the slots.

Alaska Air argues the Virgin America takeover is largely complementary and would expand its route network out of Washington, Oregon and Alaska by adding important business centers of Los Angeles and San Francisco as well as rights to operate at New York’s LaGuardia and Kennedy, New Jersey’s Newark Liberty and Washington’s Reagan National airports.

Stiff Competition

Cross-country routes between New York and California are among the most lucrative in the domestic industry. With the merger, Alaska hopes to become the carrier of choice in California, where it faces stiff competition from Southwest Airlines Co. and United Continental Holdings Inc.

Virgin America Chief Executive Officer David Cush said Monday at an aviation conference that the federal review of the merger is “going according to plan” and the two airlines still expect to complete it in the fourth quarter.

“There have been no bumps in the road,” he said.

With assistance from Justin Bachman and Michael Sasso

©2016 Bloomberg L.P.

This article was written by David McLaughlin and Mary Schlagenstein from Bloomberg and was legally licensed through the NewsCred publisher network.

Photo Credit: Virgin American and Alaska Air are facing a September 30 deadline from the U.S. Justice Department to prove their case that a merger would not be anticompetitive. Virgin America