A judge rejected JetBlue’s bid to acquire the airline, but now analysts warn that Spirit might file for bankruptcy, to survive.

This is a story that started in 2022. Frontier and Spirit announced discussions for a possible merger in February of that year. But in April, JetBlue surprised everyone when it bid to buy Spirit instead. A few months later, Spirit chose JetBlue. That year, expectations for ultra-low-cost carriers (ULCCs) were that they would have a good summer.

That optimism meant that bankruptcy was far from anyone’s mind, even if JetBlue’s purchase of Spirit seemed… odd. From the outset, the expectation was that the deal would meet with regulatory resistance. Sure enough, in March 2023 the U.S. Justice Department and several States moved to block the deal.

That became official yesterday (January 17th). U.S. District Judge William Young agreed with the Justice Department, saying that JetBlue’s acquisition of Spirit would hurt ticket buyers. JetBlue would have absorbed Spirit, which would increase ticket prices.

The ruling cited a Justice Department argument, stating that Spirit’s rivals lowered their fare prices by 7% to 11% whenever Spirit moved into their market. Therefore, JetBlue’s acquisition would lead to an overall increase in ticket prices.

Spirit Bankruptcy A Possibility?

JetBlue disagrees – and so do several analysts. The ruling assumes that Spirit can continue to offer a lower-price option to consumers, and motivate its competitors to keep their prices low. This doesn’t work if Spirit files for Chapter 11 bankruptcy and then undergoes liquidation.

That’s a prospect that an airline analyst at TD Cowen considers likely. Other analysts think that Spirit could file for bankruptcy and survive, following a re-organization. Either way, Spirit is bleeding money, which is why bankruptcy is on people’s lips.

The airline has been quite unlucky in recent months. Spirit has an all-Airbus fleet and was an early adopter of the A320neo, complete with Pratt & Whitney Geared Turbofan engines. It is the largest operator of the P&W GTF engines in the United States.

And several of its aircraft (12 at the moment) are parked, while their engines undergo length checks, following a manufacturing issue. Analysts believe that the number of parked jets will continue to rise in 2024.

Other external issues and a drop in demand in some markets, meant that the airline still isn’t profitable. Spirit could try to find another buyer, instead of filing for Chapter 11 bankruptcy. Frontier, who wanted to buy it in February 2022, could still make a bid – now at a lower price.

But the two ULCCs compete in many key markets, so regulators would likely be hostile to that deal, too. It will be interesting to see if financial trouble at Spirit changes the Justice Department’s attitude. There is also Alaska’s bid for Hawaiian Airlines, which could go ahead later this year.

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