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$3.8-Billion JetBlue-Spirit Merger Blocked Over Antitrust Concerns

JetBlue executives privately expressed relief the deal was blocked, given Spirit's worsening finances
Published: March 4, 2024
JetBlue Airbus A321LR is displayed at the 54th International Paris Air Show at Le Bourget Airport near Paris, France, June 20, 2023. (Image: REUTERS/Benoit Tessier/File Photo)

By David Shepardson and Aatreyee Dasgupta.

WASHINGTON, D.C. (Reuters) — Low-cost air carriers JetBlue Airways and Spirit Airlines canceled their $3.8-billion merger agreement on Monday (March 4), conceding no path forward after a U.S. judge blocked the deal in January on anti-competition concerns.

A successful JetBlue-Spirit merger would have created the fifth-largest carrier in the United States and ensured Spirit’s survival, 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.

U.S. Attorney General Merrick Garland said the decision by JetBlue “is yet another victory for the Justice Department’s work on behalf of American consumers” saying the merger “would have caused tens of millions of travelers to face higher fares and fewer choices.”

The Biden administration has used antitrust action and other enforcement efforts to try to bring down prices for U.S. residents 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 saved from a bad deal?

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.”

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.

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.

Spirit shares fell 14 percent in late morning trading, while JetBlue, the sixth-largest U.S carrier, shares rose 4 percent.

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.

Higher prices likely had JetBlue-Spirit merger gone forward

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 JetBlue-Spirit merger agreement.

JetBlue opted not to appeal a separate ruling that had declared its Northeast partnership with American Airlines anticompetitive.

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.

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.

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.

Reporting by Aatreyee Dasgupta in Bengaluru and David Shepardson in Washington, D.C.; Editing by David Gaffen, Devika Syamnath, Arun Koyyur and Nick Zieminski.