JetBlue and Spirit confirmed that they won’t pursue their merger deal any further. And at least one of them is reportedly relieved about it.
On the 17th of January this year, a U.S. District Judge blocked JetBlue’s acquisition of Spirit Airlines. Judge William Young sided with the U.S. Justice Department, finding that this deal between JetBlue and Spirit would hurt ticket buyers.
This was because JetBlue would incorporate Spirit’s operation into its own operating model, effectively removing Spirit from the country’s ultra-low-cost carrier market. Therefore, competition in the ULCC market would drop, and ticket prices would increase.
But this assumes that without the JetBlue deal, Spirit could continue to operate as before. However, this is far from certain, with Spirit bleeding cash over several uncompetitive months. The airline is also suffering badly from the need to perform lengthy checks on early A320neo family jets with Pratt & Whitney GTF engines.
JetBlue, Spirit Look Past Their Blocked Deal
Just days after the negative judgment last January, JetBlue raised doubts about whether or not the merger could go ahead. Spirit disagreed, feeling that there was a chance that their appeal would be successful. The $3.8 billion deal would ensure Spirit’s survival. The merger would also create the 5th largest U.S. airline, removing Alaska Airlines from that position.
But on Monday (March 4th), the two airlines announced that they wouldn’t continue with their appeal to the original judgment. And at least some JetBlue executives are reportedly happy that the Spirit deal isn’t going through.
This is because of the $3.8 billion price tag of the deal. JetBlue was already paying a premium for Spirit when the acquisition discussions were finalized. But with Spirit’s more recent problems, the already ambitious and risky acquisition seemed to make less sense.
JetBlue’s share price rose 4.3% after the latest news, while Spirit’s went down 11%. Spirit’s management is looking at alternative options. JetBlue will need to pay Spirit $69 million, because of a contractual agreement in case the deal failed in court.
The U.S. government’s reaction to the January judgment was positive, but a Spirit bankruptcy would clearly work against the judgment’s purpose.
