Written by David Shepherdson and Arturi Dasgupta
WASHINGTON (Reuters) – JetBlue Airways and Spirit Airlines on Monday scrapped a $3.8 billion merger deal, but the low-cost airline said there is no way forward.
A successful deal could have created the fifth-largest airline in the United States and ensured the survival of Spirit, which is running out of cash and suffering from heavy debt. But the combination has been in limbo since a Boston judge said it would reduce competition and harm consumers.
The decision is a victory for the Biden administration, which has taken a hard line on aviation partnerships and has argued that the deals would raise ticket prices for consumers.
President Joe Biden said the merger would “force higher fares and fewer choices for tens of millions of Americans,” calling the decision to block the merger “a victory for American consumers and competition.” ” he said.
The administration is attempting to use antitrust and other enforcement actions to drive down prices in several industries.
JetBlue CEO Joanna Geraghty told employees in an internal memo seen by Reuters: “Given the federal court ruling and the Justice Department's continued opposition, we expect the green light to move forward with the merger soon.” It is very unlikely that we will be able to obtain any.”
“Even if the ruling is overturned on appeal, there is no clear path to regulatory approval by the mandatory July 24 deadline.”
Privately, JetBlue executives expressed relief that the deal was blocked because of Spirit's declining finances, according to people familiar with the matter. If the companies had won the antitrust battle, JetBlue would have been able to use the “material adverse change” clause in its contract with Spirit to withdraw from the deal due to the decline in Spirit's assets. It was under consideration, the person said.
“We have concluded that current regulatory hurdles preclude us from completing this transaction in a timely manner in accordance with the merger agreement,” Spirit CEO Ted Christie said in a statement.
Under the deal, JetBlue will pay Spirit $69 million. While the Merger Agreement was in effect, Spirit stockholders received total upfront payments of approximately $425 million.
Without the deal with JetBlue, Spirit, the nation's seventh-largest airline, faces a tough road ahead. The ultra-low-cost airline is grappling with weak demand in its key markets as it aims to return to sustainable profitability. Some analysts have even suggested that the company could face bankruptcy if it cannot strengthen its finances.
Spirit shares fell 11% in late morning trading, while shares of JetBlue, the No. 6 U.S. airline, rose 4.3%.
The ruling by U.S. District Judge William Young found that the proposed agreement would likely undermine competition in the U.S. aviation market and could increase ticket prices.
This prompted JetBlue to question the future of the deal, saying it may not be able to meet certain conditions required as part of the deal.
JetBlue has chosen not to appeal another ruling that declared its Northeast alliance with American Airlines anticompetitive.
JetBlue, which raised baggage fees last month, said it is working on a number of short-term initiatives to increase revenue by more than $300 million and achieved cost savings of $175 million to $200 million through a structural cost program. He said he plans to do so. Maintenance savings through vehicle modernization.
In May, a judge sided with the Justice Department and six states in a lawsuit challenging a 2020 joint venture between American Airlines and JetBlue called the Northeast Alliance, which airs flights to and from New York City and Boston. We have partnered and made adjustments for flights. Schedules and revenue pools.
Spirit said it is taking steps to ensure the strength of its balance sheet and continued business and has retained Perera Weinberg & Partners and Davis Polk & Wardwell as advisors. Ta.
(Reporting by Aatreyee Dasgupta in Bengaluru and David Shepardson in Washington; Editing by David Gaffen, Devika Syamnath, Arun Koyyur and Nick Zieminski)
