JetBlue Airways and Spirit Airlines announced on Monday that they would not seek to overturn a court ruling that blocked their planned $3.8 billion merger. The decision is a big win for the Biden administration, which has sough to limit corporate consolidation.
Backing out of the agreement will cost JetBlue. Under the terms of the deal, it has to pay Spirit a breakup fee of $69 million and Spirit’s shareholders $400 million.
A federal judge in Boston blocked the proposed merger on Jan. 16, siding with the Justice Department in determining that the merger would reduce competition and give airlines more leeway to raise ticket prices. The judge, William G. Young of 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 termination of the deal on Monday, calling it “a victory for U.S. travelers who deserve lower prices and better choices.”
JetBlue and Spirit had appealed Judge Young’s decision, and JetBlue filed an appellate brief as recently as last week. But the companies appear to have concluded that they would be better off walking away than pursuing an appeal that might not succeed.
“We are proud of the work we did with Spirit to lay out a vision to challenge the status quo, but given the hurdles to closing that remain, we decided together that both airlines’ interests are better served by moving forward independently,” JetBlue’s chief executive, Joanna Geraghty, said in a statement on Monday. “We wish the very best going forward to the entire Spirit team.”
The decision to terminate the deal was not unexpected. In a securities filing on Jan. 26, JetBlue said it might walk away. Spirit said in its own filing the same day that it believed “there is no basis for terminating” the agreement.
As part of their merger agreement, JetBlue had agreed to compensate Spirit and its shareholders if the deal was blocked.
“JetBlue has made several valiant attempts and has stretched this deal out as a long as possible — they had to provide certainty for their shareholders and employees,” said Brad Haller, a partner at the consulting firm West Monroe.
The collapse of the deal could be difficult for 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 lifeline. Spirit’s chief executive, Ted Christie, said in a statement Monday that “given the regulatory uncertainty, we have always considered the possibility of continuing to operate as a stand-alone business” and have been thinking of ways to bolster profits.
It is unclear if another company will seek to acquire Spirit. Buying the airline would quickly allow other carriers to become bigger at a time when airport gates and takeoff and landing slots are in short supply in many popular U.S. destinations.
But regulators are likely to challenge a deal that they believe would result in higher fares, which suggests that only another low-cost airline that does not compete directly with Spirit on many routes would be able to pull off a deal. One possible candidate is Frontier Airlines, a low-cost carrier that had proposed buying Spirit before JetBlue outbid it by about $1 billion.
Spirit’s stock price has lost more than half its value since the ruling that blocked the merger and was down nearly 11 percent on Monday. JetBlue’s stock was up 4.3 percent at the close because investors believe the company will save money by not having to close this deal.
“From the perspective of JetBlue shareholders, this is a sigh of relief,” said Xavier Smith, director of energy and industrials research at AlphaSense. “They hope that JetBlue can now focus on other activities that may create more value like further cabin segmentation and premiumization.”
A merger of the airlines would have given the combined company a bigger share of the market, which is dominated by four carriers — American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.
JetBlue is not the only airline that has sought to challenge those four companies. Alaska Airlines, which has a big presence up and down the West Coast, announced in December that it would try to acquire Hawaiian Airlines for $1.9 billion. That deal, too, is likely to attract the scrutiny of federal antitrust regulators.
