JetBlue and Spirit Airlines have announced their plans to appeal a judge’s decision that would prevent their merger from going forward. The airlines have filed a notice of appeal, citing their obligations under the merger agreement. This comes after Judge William Young of the federal District Court for Massachusetts announced his decision, causing Spirit’s share prices to plummet by more than 50%.
During an antitrust trial last fall, JetBlue argued that it needed Spirit’s aircraft and crew members to fuel its growth and compete with larger U.S. carriers. Spirit, on the other hand, claimed that it was in a financially vulnerable position and could no longer effectively compete with its ultra-low-cost business model. Under the terms of the merger, JetBlue would acquire Spirit and incorporate its assets into its own brand and operations.
Since the initial agreement was made last spring, Spirit’s valuation has significantly declined due to the challenges faced by the airline during the pandemic. This has put JetBlue in a difficult situation as it is committed to purchasing Spirit at an inflated price of $3.8 billion. However, if the merger does not proceed, JetBlue would be required to pay a reverse breakup fee of $470 million to Spirit shareholders.
Analysts have viewed the injunction as a necessary step for JetBlue to escape from what has become a disadvantageous deal. The airline would also take on a substantial amount of Spirit’s debt if the merger were to proceed. JP Morgan analyst Jamie Baker commented that the price JetBlue agreed to pay for Spirit’s assets was too high in hindsight.
While the legal outcome frees JetBlue from further negotiations, analysts have raised concerns about Spirit’s financial stability. Some have even suggested that bankruptcy may be a real possibility for the airline. Connor Cunningham of Melius Research stated that there is a risk of bankruptcy unless there is a swift change in fundamentals. However, analysts also believe that Spirit’s management will fight to turn things around.
Helane Becker of TD Cowen expressed a pessimistic view, suggesting that the best-case scenario for Spirit would be filing for Chapter 11 bankruptcy followed by liquidation. This indicates the severity of the challenges faced by the airline.
In conclusion, JetBlue and Spirit Airlines are appealing a judge’s decision that would prevent their merger from proceeding. The airlines are obligated under the merger agreement to file an appeal. The decision has had a significant impact on Spirit’s share prices, and analysts have raised concerns about the airline’s financial stability. The outcome of the appeal will determine the future of the merger and the fate of both airlines involved.