JetBlue Airways and Spirit Airlines have decided to cancel their $3.8 billion merger agreement after a U.S. judge blocked the deal due to concerns about anti-competition. The cancellation comes as a blow to both airlines, as the merger would have created the fifth-largest carrier in the United States and helped Spirit ensure its survival.
The decision to block the merger was seen as a victory for the Biden Administration, which has been taking a tough stance against tie-ups in the aviation sector. The administration argued that the deal would lead to higher ticket prices for consumers. U.S. Attorney General Merrick Garland praised the decision, stating that the merger would have resulted in higher fares and fewer choices for travelers.
JetBlue CEO Joanna Geraghty acknowledged the slim chances of getting regulatory approval for the merger in the near future. Even if the ruling was overturned on appeal, Geraghty stated that they did not see a path to regulatory approval by the required July 24 deadline. Spirit CEO Ted Christie also expressed disappointment, citing current regulatory obstacles that would prevent them from closing the transaction in a timely manner.
As part of the agreement, JetBlue will pay Spirit $69 million. During the time when the merger agreement was in effect, Spirit stockholders received approximately $425 million in total pre-payments. Without the merger, Spirit, which is currently the seventh-largest U.S. carrier, faces a challenging road ahead. The airline has been grappling with weak demand in its key markets as it strives to achieve sustainable profitability. Some analysts have even suggested that Spirit could face bankruptcy if it fails to strengthen its finances.
Following the news of the cancellation, Spirit shares fell by 14% in late morning trading, while JetBlue shares rose by 4%.
The ruling by U.S. District Judge William Young highlighted concerns that the proposed deal would harm competition in the U.S. aviation market and potentially lead to higher ticket prices. This prompted JetBlue to express doubts about the future of the merger, as it might be unable to meet certain conditions required as part of the agreement. JetBlue also chose not to appeal a separate ruling that declared its Northeast partnership with American Airlines as anticompetitive.
JetBlue has been taking steps to boost its revenue and cut costs. The airline recently increased baggage fees and is working on various near-term efforts to generate more than $300 million in additional revenue. It is also 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.
In a separate lawsuit challenging the joint venture between American Airlines and JetBlue, called the “Northeast Alliance,” a judge sided with the Justice Department and six states. The joint venture involved coordinating schedules and pooling revenue for flights in and out of New York City and Boston.
Spirit Airlines assured stakeholders that it is taking measures to strengthen its balance sheet and ensure ongoing operations. The airline has retained Perella Weinberg & Partners and Davis Polk & Wardwell as advisors.
The cancellation of the merger between JetBlue Airways and Spirit Airlines has significant implications for both airlines. While JetBlue focuses on revenue-boosting initiatives and cost-saving measures, Spirit will need to navigate a challenging market environment to secure its financial stability. As the aviation industry continues to recover from the impact of the pandemic, these airlines will face new hurdles and opportunities in their pursuit of success.
