JetBlue Airways and Spirit Airlines on Monday announced the termination of their merger agreement, following the loss of a federal antitrust lawsuit challenging the deal.
The CEOs of JetBlue and Spirit attributed the end of their merger agreement to regulatory hurdles. Both airlines argued that combining forces was necessary to effectively compete with larger carriers dominating the U.S. market.
A federal judge’s ruling in January favored the Justice Department’s stance, halting JetBlue’s attempted acquisition of budget airline Spirit. Judge William Young expressed concerns that JetBlue’s takeover of Spirit would negatively impact cost-conscious travelers who rely on Spirit’s affordable fares.
Despite appealing the judge’s decision, JetBlue clarified that the appeal was a contractual obligation under the terms of the merger agreement. Market analysts had anticipated minimal chances of a successful appeal
Following the announcement, Spirit shares experienced a 10% decline in morning trading on Monday, while JetBlue’s stock saw an increase of over 2%.
Nearly two years ago, JetBlue made an unsolicited bid for Spirit Airlines, which had recently entered a merger agreement with fellow budget carrier Frontier. Despite initial resistance, JetBlue secured approval from Spirit shareholders to proceed with the acquisition.
JetBlue CEO Joanna Geraghty acknowledged the ambitious nature of the plan, aimed at disrupting the industry’s status quo and providing growth opportunities. However, given the court ruling and ongoing opposition from the Department of Justice, Geraghty deemed the likelihood of obtaining approval for the merger shortly as extremely low.
Geraghty, who recently assumed the role of CEO, faces the task of addressing JetBlue’s financial challenges, enhancing operations, and reducing costs. Activist investor Carl Icahn revealed a significant stake in the airline on Geraghty’s first day, subsequently securing two board seats.
The prospective acquisition of Spirit would have offered relief to the struggling airline, which is grappling with the grounding of numerous Airbus planes due to engine defects. Spirit anticipates compensation from engine maker Pratt & Whitney for the resulting disruptions.
With the merger now abandoned, Spirit is compelled to tackle its financial issues independently, a task its leadership believes it is well-equipped to handle. The airline is actively pursuing debt refinancing and has reported better-than-expected demand, projecting revenue for the first quarter that surpasses analysts’ forecasts.
Spirit CEO Ted Christie emphasized the company’s readiness to operate as a standalone entity and its commitment to enhancing profitability and customer experience. He noted that Spirit shareholders had received prepayments totaling $425 million from JetBlue during the agreement, with JetBlue agreeing to pay Spirit $69 million related to the termination of the agreement.
