JetBlue Airways and Spirit Airlines announced Monday that they will not seek to overturn a court order that blocked their planned $3.8 billion merger. The decision is a major victory for the Biden administration, which has sought to curb corporate consolidation.
Pulling out of the deal will cost JetBlue. Under the terms of the deal, he must pay Spirit a breakup fee of $69 million and Spirit shareholders $400 million.
A federal judge in Boston blocked the proposed merger on Jan. 16, siding with the Justice Department in ruling that the merger would reduce competition and give airlines more room to raise ticket prices. The judge, William G. Young of the U.S. District Court for the District of Massachusetts, noted that Spirit played a vital role in the market as a low-cost carrier and that travelers would have fewer options if JetBlue absorbed it.
The Justice Department hailed the deal’s termination Monday, calling it “a victory for U.S. travelers who deserve lower prices and better choices.”
JetBlue and Spirit had appealed Judge Young’s ruling, and JetBlue filed an appeal just last week. But the companies seem to have concluded that it would be better to walk away than pursue an appeal that might not succeed.
“We’re proud of the work we’ve done with Spirit to shape a vision to challenge the status quo, but given the barriers to closure that remain, we’ve jointly decided that the interests of both airlines are best served by proceeding independently.” , the JetBlue chief said. The executive, Joanna Geraghty, said in a statement on Monday. “We wish the best for the entire Spirit team.”
The decision to end the deal was not unexpected. In a Jan. 26 securities filing, JetBlue said it may exit the deal. Spirit said in its own filing the same day that it believed there was “no basis for termination” of the deal.
As part of their merger agreement, JetBlue had agreed to compensate Spirit and its shareholders if the deal was blocked.
“JetBlue made a lot of valiant efforts and extended this deal as far as possible, they needed to provide certainty to their shareholders and employees,” said Brad Haller, a partner at consulting firm West Monroe.
The collapse of the deal could be difficult for the Spirit to bounce back from.
Spirit is heavily indebted and last turned a profit before the Covid-19 pandemic. Investors saw the JetBlue acquisition as a lifesaver. Spirit Chief Executive Ted Christie said in a statement on Monday that “given the regulatory uncertainty, we have always looked at the possibility of continuing to operate as a standalone business” and are considering ways to boost earnings.
It is unclear whether another company will seek to acquire Spirit. Buying the airline would quickly allow other carriers to get bigger at a time when airport gates and takeoff and landing slots are in short supply at many popular U.S. destinations.
But regulators are likely to challenge a deal they believe would lead to higher fares, suggesting that only another low-cost airline that does not directly compete with Spirit on many routes could strike a deal. One possible suitor is Frontier Airlines, a low-cost carrier that had proposed buying Spirit before JetBlue outbid it for about $1 billion.
Spirit’s share price has lost more than half its value since the ruling blocked the merger and was down about 15 percent on Monday morning. JetBlue stock rose about 2 percent on Monday because investors believe the company will save money if it doesn’t have to close that deal.
A merger of the airlines would give the combined company a larger share of the market, which is dominated by four carriers — American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.
JetBlue isn’t the only airline that has tried to challenge these four companies. Alaska Airlines, which has a large presence on the West Coast, announced in December that it would try to buy Hawaiian Airlines for $1.9 billion. That deal, too, is likely to attract scrutiny from federal antitrust regulators.
