On Monday, JetBlue Airways (JBLU.O) and Spirit Airlines (SAVE.N) terminated their $3.8 billion merger agreement. The decision was made as they found no viable alternative after a US judge halted the deal in January over anti-competitive concerns.
A successful transaction could have resulted in the fifth-largest carrier in the United States. This, in turn, might have secured Spirit’s existence as it burns cash and battles with debt. However, the merger had been on the rocks since a Boston judge declared it would damage consumers by limiting competition.
The decision represents a victory for the Biden administration, which has adopted a firm stance against aviation mergers. The administration has argued that the acquisition would result in higher consumer ticket prices.
President Joe Biden stated that the “merger would have forced higher fares and fewer choices on tens of millions of Americans.” He emphasized that the decision to stop the merger was a “win for American consumers and competition.”
The government has utilized antitrust and other enforcement actions to try to lower prices in a variety of businesses.
“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.”
Privately expressing relief, JetBlue executives acknowledged that the transaction had been blocked. This decision was attributed to Spirit’s poor finances, as disclosed by a person familiar with the situation. If the firms were to win their antitrust case, JetBlue was contemplating terminating the deal with Spirit under a “material adverse change” clause in their contract. This consideration was based on the source’s observation of Spirit’s downturn in fortunes.
In a statement, Spirit CEO Ted Christie asserted, “We have concluded that current regulatory obstacles will not permit us to close this transaction in a timely fashion under the merger agreement.” Consequently, the decision to abandon the merger was made.
According to the agreement, JetBlue will pay Spirit $69 million. While the merger agreement was in force, Spirit investors received about $425 million in total prepayments.
Without the JetBlue merger, Spirit, the seventh-largest US carrier, faces a difficult road ahead. As it strives to restore to long-term profitability, the ultra-low-cost carrier has faced low demand in its major regions. Some analysts have even indicated that the corporation may declare bankruptcy if it is unable to shore up its finances.
Spirit shares fell 11% in late morning trade, while JetBlue, the sixth-largest US carrier, increased 4.3%.
U.S. District Judge William Young ruled that the proposed merger was likely to reduce competition in the US aviation market. Consequently, it could potentially raise ticket costs.
Expressing concern about the viability of the partnership, JetBlue stated that it may be unable to achieve certain conditions outlined in the agreement. They are reconsidering the feasibility of the proposed merger.
JetBlue declined to appeal a separate verdict that deemed its Northeast alliance with American Airlines anticompetitive.
JetBlue, which raised baggage fees last month, said it is working on numerous near-term initiatives to increase revenue by more than $300 million. Additionally, the company stated that it is progressing towards achieving $175-200 million in cost savings through its structural cost program. Simultaneously, it anticipates $75 million in maintenance savings from fleet modernization efforts.
In May, a judge issued a ruling favoring the Justice Department and six states in a lawsuit. The lawsuit challenged the “Northeast Alliance,” a joint venture formed by American and JetBlue in 2020. The purpose of the alliance was to coordinate flights into and out of New York City and Boston, as well as pool income.
Spirit announced that it is taking steps to fortify its balance sheet and sustain operations. To facilitate this effort, the company has enlisted Perella Weinberg & Partners and Davis Polk & Wardwell as advisors. These strategic moves underscore Spirit’s commitment to financial stability and operational resilience.
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