Low-cost carriers JetBlue Airways and Spirit Airlines cancel $3.8-billion merger

Merger Blocked Due to Anti-Competition Concerns

By Editor

Washington (Reuters) – In a significant turn of events, JetBlue Airways and Spirit Airlines have mutually agreed to cancel their $3.8-billion merger agreement. This decision comes after a U.S. judge blocked the merger in January amidst concerns related to anti-competition practices.

The merger, if successful, would have resulted in the creation of the fifth-largest carrier in the United States. Additionally, it would have provided a lifeline to Spirit Airlines, which has been grappling with financial hardships and mounting debt. However, concerns around potential harm to consumer interests and reduced competition have plagued the merger since a Boston judge first raised the objections.

Biden Administration Prevails

The cancellation of the merger serves as a win for the Biden Administration, which has taken a firm stance against consolidation in the aviation sector. Asserting that the deal would lead to increased ticket prices for consumers, U.S. Attorney General Merrick Garland celebrated the decision. He called it a victory for the Justice Department’s commitment to protecting American consumers from adverse market practices. In fact, the administration has been actively employing antitrust measures and enforcement efforts to drive down prices in various industries and sectors.

The Path to Approval Appears Bleak

JetBlue CEO Joanna Geraghty candidly acknowledged the dwindling chances of the merger gaining regulatory approval anytime soon. She expressed this sentiment in an internal note to employees, stating, “Even if the court ruling were to be reversed on appeal, the likelihood of obtaining regulatory approval by the required July 24 deadline seems extremely low.”

Privately, JetBlue executives reportedly breathed a sigh of relief over the blocked merger. Citing Spirit Airlines’ deteriorating financial situation, sources say JetBlue was contemplating utilizing a “material adverse change” clause to walk away from the deal had the antitrust battle been won. The cancellation thus offers respite to JetBlue as well.

Spelling Trouble for Spirit Airlines

Spirit Airlines, now bereft of the merger, faces an arduous road ahead. As the seventh-largest carrier in the United States, the ultra-low-cost airline confronts weak demand in its core markets and an urgent need to restore financial stability. There have been suggestions by analysts that the company may even face bankruptcy if it fails to bolster its finances.

In a related development, Spirit Airlines’ stock witnessed a 14% decline in late morning trading following the official cancellation. Conversely, JetBlue, the sixth-largest carrier in the United States, experienced a 4% rise in their share prices.

Judge Cites Anti-Competition Concerns

The ruling by U.S. District Judge William Young, which foiled the merger, aptly pointed out that the proposed deal was likely to harm competition within the U.S. aviation market. Concerns were raised regarding potential price hikes for airline tickets. The court decision prompted JetBlue to express doubts about the future viability of the deal, citing the potential failure to meet specific conditions set forth in the agreement.

It is worth noting that JetBlue refrained from challenging a separate ruling that deemed their Northeast partnership with American Airlines as anticompetitive. Consequently, the viable future collaborations between JetBlue and American Airlines have been thrown into question as well.

Restructuring Efforts Amidst Challenges

JetBlue is actively working on multiple concurrent initiatives to boost revenues by over $300 million in the short term. The airline has reiterated its commitment to delivering cost savings worth $175-200 million through its structural cost reduction program, along with $75 million in maintenance savings derived from its fleet modernization efforts.

Looking Ahead

Spirit Airlines is taking preemptive steps to safeguard its financial strength and ongoing operations. The company has retained the services of advisory firms Perella Weinberg & Partners and Davis Polk & Wardwell to navigate its path forward.

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Aatreyee Dasgupta
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David Shepardson
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