Flybe, the regional airline, is close to being taken over by a consortium led by Virgin Atlantic in a cut-price deal that will underscore the aviation sector's huge financial challenges.
Sky News has learnt that Virgin Atlantic has agreed to join forces with Flybe's other suitor, Stobart Group, to form a new company that will also comprise the Stobart Air franchise operation.
An offer for Flybe worth significantly less than the company's closing share price on Thursday of 16.38p will be announced to the London Stock Exchange on Friday, according to sources close to the deal.
The takeover will come less than two months after Flybe put itself up for sale, blaming a toxic cocktail of currency volatility, rising fuel costs and Brexit-related uncertainty.
Although it is small in financial terms, Flybe remains one of the UK's best-known airline brands, carrying thousands of passengers between largely second-tier British airports as well as European destinations.
Under the terms of the proposed deal to be announced on Friday, Virgin Atlantic will operate the network of regional flights provided by a combination of Flybe and Stobart Air.
The carrier part-owned by Sir Richard Branson is expected to be the largest shareholder in the newly formed company, with Stobart Group and Cyrus Capital Partners owning smaller but still substantial stakes.
Stobart is understood to be contributing the assets of Stobart Air rather than any cash in exchange for its stake.
For Virgin Atlantic, control of Flybe's regional network will provide a valuable feed into its long-haul flights to international destinations.
Its return to the domestic UK aviation market will come four years after announcing the closure of Little Red, its previous attempt to make money from a notoriously difficult sector.
Flybe also has access to valuable take-off and landing slots at London Heathrow Airport which are ring-fenced for domestic flights.
The two carriers already operate a code-share pact aimed at improving access to Virgin Atlantic's long-haul routes for regional customers using the regional airline's flights into Heathrow and Manchester.
Rothschild, the investment bank, is advising Virgin Atlantic, while Evercore is advising Flybe.
The consortium's offer for Flybe is likely to value its shares at around£20m, providing few crumbs of comfort for the airline's long-suffering shareholders.
Nevertheless, if the deal is completed, it would be a significant combination in a British aviation sector which is viewed as requiring further consolidation.
Rising oil prices and the weakening of sterling have put airlines under intense pressure, with a deepening industry price war accentuating the financial squeeze.
Monarch Airlines crashed into insolvency in 2017, while more recently, Primera Air, a budget carrier which began offering long-haul flights from British airports last year, filed for administration.
Sir Richard launched Little Red in 2013 after gaining slots that arch-rival British Airways was forced to relinquish after its takeover of bmi.
However, the tycoon threw in the towel less than two years later, blaming the "meagre package of slots" with which it had operated.
Sources cautioned that the door remained open to another bidder for Flybe.
Virgin Atlantic is also entrenched in a process to change its ownership structure, having agreed a three-way deal last year with Air France-KLM and Delta Air Lines under which the Franco-Dutch group would acquire a 31% stake in Virgin Atlantic from Sir Richard's holding company for £220m.
Virgin Group intends to retain a 20% stake and the right to appoint the airline's chairman, while US-based Delta would retain its existing 49% shareholding.
The transaction remains subject to regulatory approvals, which could be affected by a no-deal departure by the UK from the European Union.
Virgin Atlantic's need to secure a berth as part of an alliance with better-resourced rivals was underlined again last year when it reported a £28.4m loss before tax and exceptional items for 2017.
The company announced a change of leadership in June, with Craig Kreeger due to step down next month as its chief executive after nearly six years at the helm.
Stobart, which has been at the centre of a bitter courtroom battle between board members and its former chief executive, abandoned a previous bid for Flybe last year.
Since confirming that it was exploring a sale, Flybe has taken further steps to shore up its finances, announcing an extension of its borrowing facilities and a £5m sale and leaseback of an aircraft hangar.
The Exeter-based carrier, which recently reported a halving of pre-tax profit for the first half of the year, is understood to require an immediate injection of capital.