$3.8 Billion Merger Aborted - Spirit & JetBlue

JetBlue, Spirit Abort $3.8 Billion Merger Amidst Antitrust Hurdles

$3.8 Billion Merger Aborted by Spirit & JetBlue – Following significant hurdles, low-cost airlines JetBlue Airways and Spirit Airlines announced the termination of their proposed $3.8 billion merger agreement on Monday, September 4th, 2024. This decision comes after a U.S. judge blocked the deal in January, citing antitrust concerns and potential harm to competition in the aviation market.

The proposed deal, if successful, would have created the fifth-largest airline in the United States, bolstering Spirit’s financial stability. However, Judge William Young’s ruling in January cast a shadow over the merger’s future, expressing concerns that it could lead to higher ticket prices for consumers.

“Given the court’s ruling and the continued opposition from the Department of Justice, the likelihood of receiving approval to proceed with the merger anytime soon is extremely low,” JetBlue CEO Joanna Geraghty informed employees in an internal memo obtained by Reuters. “Even if the ruling were reversed on appeal, we simply don’t see a clear path to regulatory approval by the required July 24th deadline.”

Echoing this sentiment, Spirit CEO Ted Christie stated, “we concluded that current regulatory obstacles will not allow us to finalize this transaction in a timely manner under the terms of the merger agreement.”

$3.8 Billion Merger Aborted – Spirit & JetBlue – As per the agreement, JetBlue will compensate Spirit with a termination fee of $69 million. Additionally, during the period the merger agreement was in effect, Spirit shareholders received a total of approximately $425 million in pre-payments.

The collapse of the merger deal leaves Spirit, the seventh-largest U.S. carrier, facing uncertain future prospects. The airline, known for its ultra-low-cost model, has been grappling with weak demand in key markets and struggling to achieve sustainable profitability. Industry analysts have even raised concerns about the possibility of bankruptcy if Spirit cannot improve its financial situation.

Following the news, Spirit stock prices plummeted 14% in pre-market trading, while JetBlue, the sixth-largest U.S. carrier, experienced a surge of 5.5% in its stock value.

The decision to abandon the merger represents a victory for the Biden Administration, which has implemented stricter enforcement measures regarding mergers and acquisitions in the aviation sector. The administration expressed strong opposition to the deal, arguing that it would lead to higher fares for consumers. The administration’s stance aligns with its broader policy of using various legal and enforcement tools to promote lower prices across multiple industries for American citizens.

Judge Young’s ruling, which deemed the proposed merger likely to stifle competition in the U.S. aviation market and potentially increase ticket prices, fueled doubts about the deal’s viability. This prompted JetBlue to express concerns about its ability to meet certain agreement conditions.

Neither the Department of Justice nor the Department of Transportation offered immediate comments regarding the merger’s termination.

While JetBlue opted not to appeal a separate ruling deeming its Northeast alliance with American Airlines anti-competitive, they are actively pursuing numerous initiatives aimed at boosting near-term revenue by over $300 million. Additionally, the airline remains on track to achieve cost savings of $175-$200 million through its structural cost program and $75 million through its fleet modernization efforts.

In May 2024, a judge ruled in favor of the Department of Justice and six states in a lawsuit challenging the “Northeast Alliance,” a joint venture established in 2020 by American and JetBlue to collaborate on flights in and out of New York City and Boston. The alliance involved coordinated schedules and revenue sharing between the two airlines.

In response to the failed merger, Spirit announced measures to strengthen its financial standing and maintain ongoing operations. The airline has retained advisors Perella Weinberg Partners and Davis Polk & Wardwell to navigate the situation.
Source (REUTERS)

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