Flybe and Virgin Atlantic have confirmed they are in talks about a sale or closer alliance.
The move comes after cash-strapped Flybe put itself up for sale earlier this month.
The Exeter-based regional airline said that Virgin was “one of the parties” it has been in discussions with.
Last month, Flybe warned its full-year losses would be £22m, blaming falling consumer demand, a weaker pound and higher fuel costs.
Confirming the talks, Flybe added that there was no certainty that an offer would be made by Virgin.
In a short statement, Virgin Atlantic said it “has a trading and codeshare relationship with Flybe and confirms that it is reviewing its options in respect of Flybe which range from enhanced commercial arrangements to a possible offer for Flybe”.
Since hitting a price of nearly 50p in March this year, Flybe’s shares have fallen by more than three-quarters. On Friday, they jumped by nearly half to 14.3p.
Aviation analyst Andrew Charlton, from Aviation Advocacy, said Virgin Atlantic was likely lured to the beleaguered budget carrier to gain access to its take-off and landing slots at Heathrow airport.
“Flybe has a fine suite of slots across the UK, particularly at Heathrow. Any bid by Virgin would be a back-door way to get access to them and is probably cheaper than to wait to buy similar landing slots outright.”
Mr Charlton said that Virgin Atlantic may also benefit from certain regional routes flown by Flybe which would deliver passengers into London for Virgin Atlantic’s long-haul operations based in London’s Heathrow and Gatwick airports.
Flybe, whose roots date back to 1979, has 78 planes operating from smaller airports such as London City, Southampton, Cardiff, Belfast City, Aberdeen and Norwich to destinations in the UK and Europe.
It serves about eight million passengers a year, but has been struggling to recover from an expensive IT overhaul and has been trying to reduce costs.
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