This is major — a judge has just ruled against JetBlue’s takeover of Spirit…
Judge blocks JetBlue’s takeover of Spirit
In July 2022, it was announced that JetBlue and Spirit would merge. It was quite a path to get to that point, because the initial plan was for Frontier and Spirit to merge, but JetBlue ended up outbidding Frontier.
From the beginning, there were concerns about the merger between JetBlue and Spirit getting regulatory approval. Sure enough, in early 2023, the Department of Justice (DOJ) announced that it intended to challenge this merger in court. That trial took place in late 2023, and for the past several weeks, we’ve been waiting on a verdict.
That verdict is now out, and the judge overseeing the case has issued his ruling. Long story short, JetBlue’s takeover of Spirit has been blocked, full stop. No, this isn’t a case where JetBlue just has to make additional concessions, but rather the merger is off altogether, as it was found to be in violation of the Clayton Act:
In sum, the Court has made its best attempt, applying the law to the evidence in this case, to predict the future of a dynamic market recovering from the COVID-19 pandemic, in markedly uncertain times. For the reasons set forth above, therefore, the Court rules that the proposed acquisition violates Section 7 of the Clayton Act. Spirit is a small airline. But there are those who love it. To those dedicated customers of Spirit, this one’s for you. Why? Because the Clayton Act, a 109-year-old statute requires this result –- a statute that continues to deliver for the American people.
While there’s potentially an appeals process, if that isn’t successful, JetBlue is on the hook for a $470 million reverse breakup fee to Spirit, minus any fees already paid to Spirit shareholders. That’s because this was a condition of the agreement, if the deal couldn’t close on regulatory grounds.
What’s next for JetBlue, Spirit, and other airlines?
As you’d expect, Spirit Airlines shares are way down following this news, while JetBlue shares are up moderately. One certainly wonders what all of this means for the future of both airlines.
JetBlue has been struggling, and has argued that the only way that it can grow and compete with the big carriers is through a merger. That’s now off the table. The airline has a new CEO, but it’s an executive who has been at the airline for decades, so I can’t imagine the airline will really be changing directions.
The even bigger question is what the future holds for Spirit Airlines. Spirit Airlines isn’t in a good financial situation, and has been losing money for some time, with no real plan to change that, as the focus has been on getting this merger approved. Does the airline have an independent future?
While investors are generally a lot less optimistic about ultra low cost carriers than a year ago, could we see Frontier once again expressing interest in acquiring Spirit? After all, that seems to be the only kind of takeover that might not face regulatory issues, since it would be the merging of two ultra low cost carriers. Nowadays so many airline executives are saying that scale matters, and that the only way to compete is to be big, so I could see Frontier considering this again, if it can get the financing.
I’m also curious about the implications of this for Alaska’s takeover of Hawaiian, since there are questions as to whether or not there will be regulatory concerns there.
Goodness, what an announcement. Most of us can agree that an independent Spirit and independent JetBlue are better for consumers than a merged company, assuming they can stay in business independently. But that’s an absolutely massive “if.” These aren’t companies that are in good financial situations.
Yes, Spirit continuing to operate independently is good for consumers, but how is Spirit supposed to make money? The airline has been running an operating loss for a long time, so these fares aren’t profitable, and clearly consumers don’t value Spirit’s product in a way where it can be a win-win. What’s the plan to make Spirit profitable?
Bottom line
A judge has blocked JetBlue’s takeover of Spirit, ruling that it violates the Clayton Act, and would be bad for competition. This is major, as the two airlines now need to focus on their independent futures. In particular, I can’t help but wonder what’s in store next for Spirit. Could we see a Frontier and Spirit merger be back on the table?
What do you make of the JetBlue and Spirit merger being blocked?
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