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.
Shares in Flybe had jumped 40% on media reports of Virgin’s interest.
Last month, Flybe warned its full-year losses would be £22m, blaming falling consumer demand, a weaker pound and higher fuel costs.
The Exeter-based airline said that Virgin was “one of the parties” it has been in discussions with.