JetBlue and Spirit Airlines has call off the $3.8 billion merger on antitrust hurdle. JetBlue Airways (JBLU.O), and Spirit Airlines (SAVE.N), scrapped their merger on Monday, with the low-cost carriers saying there was no path forward after a U.S. judge blocked the deal in January on anti-competition concerns.
A successful JetBlue and Spirit Airlines deal would have created the fifth-largest carrier in the U.S. Also it could have potentially avoided Spirit Airlines bankruptcy, as it burns through cash and struggles with its debt pile. But the combination had been on the ropes ever since a Boston judge said it would harm consumers by reducing competition.
Why Jetblue, Spirit merger called off?
The antitrust ruling is a victory for the Biden Administration, which has taken a hard line against tie-ups in the aviation sector and argued the deal would boost ticket prices for consumers.
President Joe Biden said the “merger would have forced higher fares and fewer choices on tens of millions of Americans” and called the decision to block the merger “a win for American consumers and competition.
The administration has used antitrust action and other enforcement efforts to try to bring down prices across several industries.
“With the ruling from the federal court and the Department of Justice’s continued opposition, the probability of getting the green light to move forward with the merger anytime soon is extremely low,” JetBlue CEO Joanna Geraghty told employees in an internal note seen by Reuters.
“Even if the ruling was overturned on appeal, we simply don’t see a path to regulatory approval by the required July 24 deadline.”
JetBlue relieved
Privately, JetBlue executives expressed relief the deal was blocked, because of Spirit’s deteriorating finances, according to a person familiar with the matter. Had the companies prevailed in their antitrust fight, JetBlue was considering using a “material adverse change” clause in its contract with Spirit to walk away from the deal, citing the latter’s decline in fortunes, the source said.
Spirit CEO Ted Christie said in a statement, “we concluded that current regulatory obstacles will not permit us to close this transaction in a timely fashion under the merger agreement.”
JetBlue and Spirit deal
Under the agreement, JetBlue will pay Spirit $69 million. While the merger agreement was in effect, Spirit stockholders received approximately $425 million in total pre-payments.
Road ahead for Spirit Airlines
Without the JetBlue deal, Spirit, the seventh-largest U.S. carrier, faces a rough road ahead. The ultra-low-cost carrier has grappled with weak demand in its key markets as it seeks to return to sustainable profitability. Some analysts have even suggested the company could face bankruptcy if it cannot shore up finances.
Stock update
Spirit Airlines shares closed down 11% in late morning trading, while JetBlue, the sixth-largest U.S carrier, shares rose 4.3%.
JetBlue and Spirit deal antitrust concerns
The ruling by U.S. District Judge William Young found the proposed deal was likely to hurt competition in the U.S. aviation market and could hike ticket prices.
That prompted JetBlue to raise doubts over the future of its deal, saying it might be unable to meet certain conditions required as part of the agreement.
JetBlue and American Airlines partnership
JetBlue opted not to appeal a separate ruling that had declared its Northeast partnership with American Airlines anticompetitive.
A judge in May sided with the Justice Department and six states in a lawsuit challenging the joint venture that American and JetBlue entered into in 2020, called the “Northeast Alliance,” joining forces for flights in and out of New York City and Boston, coordinating schedules and pooling revenue.
JetBlue and Spirit Airlines future
JetBlue, which last month hiked baggage fees, said is working on numerous near-term efforts to boost revenue by more than $300 million and said it is on track to deliver $175-200 million in cost savings from its structural cost program and $75 million in maintenance savings from its fleet modernization.
Spirit said it was taking steps to ensure the strength of its balance sheet and ongoing operations and retained Perella Weinberg & Partners and Davis Polk & Wardwell as advisors.
There is now an ongoing battle between regulators and companies in the aviation industry. The collapse of the JetBlue and Spirit merger highlights the increasing scrutiny that mergers and acquisitions face where consolidation could potentially reduce competition and harm consumers. Also it highlights Biden administration’s commitment to antitrust enforcement and its efforts to prevent mergers that could lead to higher prices and fewer choices for consumers.
