A federal judge blocked low-cost carrier JetBlue’s $3.8 billion takeover of ultra-low-cost carrier Spirit Airlines this week, putting the smaller airline’s future in jeopardy.
The Justice Department sued to stop the merger last month, arguing that the deal would lead to less competition and higher prices. In his 100-plus page ruling on Tuesday, Judge William Young agreed the deal would be anti-competitive.
Spirit Airlines stock lost almost half its value that day.
“[If] JetBlue were permitted to gobble up Spirit — at least as proposed — it would eliminate one of the airline industry’s few primary competitors that provides unique innovation and price discipline,” Young wrote. “It would further consolidate an oligopoly by immediately doubling JetBlue’s stakeholder size in the industry. Worse yet, the merger would likely incentivize JetBlue further to abandon its roots as a maverick, low-cost carrier.”
The ruling, which aims to side with price-sensitive customers, could unwittingly be the nail in the coffin for Spirit, the smaller of the two airlines. JetBlue, which was hoping to grow its number of aircrafts and pilots with the merger, will likely survive the blow.
But Spirit’s future hangs in the balance.
Spirit’s struggles are bigger than JetBlue’s
Spirit Airlines has indicated that it will average 26 grounded planes in 2024 to replace the Pratt & Whitney engines on many of its Airbus jets because of a manufacturing defect. Starting with 13 in January and going up to 41 in December, that will account for more than 10% of its fleet. This “drives a dramatic decrease in the Company’s near-term growth projections,” the company warned last October.
That’s an additional burden on an already big pile of losses for the airline whose ticker symbol is SAVE. In his ruling, Young acknowledged that Spirit anticipates a $467 million loss for 2023 (on top of prior losses over $1 billion), and has not been profitable since 2019. The Miramar, Florida-headquartered airline’s options are now to seek another buyer or file for Chapter 11 bankruptcy and liquidate, analysts say.
A few weeks ago, Spirit raised $419 million by mortgaging many of its planes, but even then, “from here its liquidity-raising cupboard does not appear robust,” JPMorgan analyst Jamie Baker said.
JetBlue has also not turned a profit since 2019 — but given its size, its losses are more manageable. The bigger airline still has 131 Airbus aircraft on order, split between 76 A220-300 and 55 A321neos, Simple Flying reported, citing the manufacturer’s latest Orders & Deliveries data. It’s also been growing its European footprint.
Joanna Geraghty, JetBlue’s incoming CEO who succeeds Robert Hayes, has to reassess JetBlue’s flight path forward. But the deal falling through may actually be a boon, according to TD Cowen analysts, because Spirit has only lost value since the deal was first announced.
Charted: Spirit’s stock plunge is more drastic then JetBlue’s
Quotable: Spirit and JetBlue believer the merger would’ve been good for flyers
“We continue to believe that our combination is the best opportunity to increase much needed competition and choice by bringing low fares and great service to more customers in more markets while enhancing our ability to compete with the dominant US carriers.”
—JetBlue and Spirit’s joint statement after the court ruling blocking their deal
One key number: Airline mergers and acquisitions
20: Years since a major airline acquisition has been blocked in the US before the JetBlue-Spirit challenge. It’s also the number of mergers that have been greenlit in the same two-decade period, several of them involving the big four airlines — American, United, Delta, and Southwest.
A brief timeline of the JetBlue-Spirit merger
April 2022: JetBlue, the sixth-largest airline in the US, sets sights on acquiring Spirit, getting in a bidding war with Frontier Airlines. JetBlue eventually wins.
July 2022: JetBlue agrees to a court-ordered breakup of an alliance with American Airlines to appease regulators and win their approval for the Spirit deal. By the end of the month, it signs the $3.8 billion Spirit Airlines takeover deal.
October 2022: Spirit shareholders vote to approve the JetBlue offer.
February 2023: Executives from Spirit and JetBlue meet with DOJ officials in an attempt to convince regulators to approve the merger.
March 2023: The Justice Department and the Transportation Department sue to block the JetBlue-Spirit deal, alleging that JetBlue “plans to abandon Spirit’s business model, remove seats from Spirit’s planes, and charge Spirit’s customers higher prices” if the acquisition goes through.
October 2023: A federal judge in Boston sets an Oct. 16 trial date for the JetBlue-Spirit lawsuit filed by the Justice Department.
November 2023: Both Spirit Airlines CEO Ted Christie and then-JetBlue CEO Hayes appear in court to defend the proposed acquisition.
January 2024: The judge blocks the deal. The decision “narrowly applies only to the proposed merger of JetBlue and Spirit as it currently stands,” so it’s off for now but could be revived in the future.