A JetBlue Airways Airbus A320, left, passes a Spirit Airlines Airbus A320 as it taxis on the runway at the Fort Lauderdale-Hollywood International Airport, in Fort Lauderdale, Fla., on July 7, 2022.Wilfredo Lee/The Associated Press
Low-cost air carriers JetBlue Airways Corp. JBLU-Q and Spirit Airlines Inc. SAVE-N cancelled their US$3.8-billion merger agreement on Monday, seeing no path forward after a U.S. judge blocked the deal in January on anti-competition concerns.
A successful deal would have created the fifth-largest carrier in the United States and helped Spirit ensure its survival, but the deal had been on the ropes ever since a Boston judge said it would harm consumers by reducing competition.
The decision is a victory for the Biden administration, which has taken a hard line against tie-ups in the aviation sector and argued the deal would boost ticket prices for consumers.
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 travellers to face higher fares and fewer choices.”
The 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 chief executive officer 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.”
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 US$69-million. While the merger agreement was in effect, Spirit stockholders received approximately US$425-million in total prepayments.
Without the JetBlue deal, Spirit, the seventh-largest U.S. carrier, faces a rough road ahead. The ultralow-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 per cent in late morning trading, while JetBlue, the sixth-largest U.S carrier, shares rose 4 per cent.
The ruling by U.S. District Justice William Young found the proposed deal was likely to hurt competition in the U.S. aviation market and could hike ticket prices.
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 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 US$300-million and said it is on track to deliver US$175-200 million in cost savings from its structural cost program and US$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 and Boston, co-ordinating schedules and pooling revenue.
Spirit said it was taking steps to ensure the strength of its balance sheet and continuing operations and retained Perella Weinberg & Partners and Davis Polk & Wardwell as advisers.
Low-cost air carriers JetBlue Airways and Spirit Airlines cancelled their $3.8-billion merger agreement on Monday, seeing no path forward after a U.S. judge blocked the deal in January on anti-competition concerns.
Reuters