JetBlue Airlines And Spirit Airlines It said Monday it had terminated its agreement to merge, weeks after losing a federal antitrust lawsuit that challenged the deal.
The CEOs of the two companies pointed to regulatory obstacles in finalizing their merger agreement.
A federal judge in January sided with the Justice Department and blocked JetBlue's attempt to acquire budget carrier Spirit. JetBlue's acquisition of Spirit “would harm cost-conscious travelers who rely on Spirit's low fares,” Judge William Young said in his ruling. The airlines have said they need to unite to better compete with the major airlines that control most of the U.S. market.
JetBlue and Spirit appealed the judge's decision, but JetBlue noted that an appeal was required under the terms of the merger agreement. Analysts expected little chance of the appeal succeeding.
The Justice Department cheered the news on Monday, a year after it filed suit to block the deal. “Today’s JetBlue decision is another victory for the Department of Justice’s work on behalf of American consumers,” Attorney General Merrick Garland said in a statement.
Spirit shares fell nearly 11% on Monday to end the trading session at their lowest closing price ever, $5.76 per share, while JetBlue stock closed up more than 4% at $6.75.
Nearly two years ago, JetBlue swooped in with an unsolicited offer to buy Spirit Airlines, which weeks earlier had entered into a merger agreement with a fellow low-cost airline. border. JetBlue eventually won approval from Spirit shareholders to acquire the discount carrier.
“It was a bold and courageous plan aimed at disrupting the status quo of the industry, and we were right to compete with Frontier and look for an opportunity that would further our growth and provide more opportunities for crew members,” said Joanna Geraghty, CEO of JetBlue. Memo to staff on Monday.
“However, with the federal court ruling and continued opposition from the Department of Justice, the likelihood of getting the green light to move forward with the merger anytime soon is extremely low,” she added.
Geraghty took over as CEO from Robin Hayes last month, tasked with stemming JetBlue's losses, improving its operations and cutting costs. Activist investor Carl Icahn disclosed a nearly 10% stake in the airline on her first day, and days later won two seats on the New York-based airline's board of directors.
JetBlue's upcoming purchase of Spirit could have been a buoy for the struggling discount airline, which faces the grounding of dozens of its Airbus planes for inspections due to… Pratt & Whitney Engine malfunction. Spirit expects compensation from the engine maker as a result of the defect.
With the deal off the table, Spirit must confront its financial problems on its own, something its leaders say it is prepared to do.
The company said it was working to refinance its debt, and said last month it was on its way back to profitability thanks to better-than-expected demand. First-quarter revenues were expected to be higher than analysts' expectations.
“Throughout the transaction process, given regulatory uncertainty, we always considered the possibility of continuing to operate as an independent company and evaluated and implemented several initiatives that would enable us to enhance profitability and elevate the guest experience,” Spirit CEO Ted said. Christie said Monday.
He said Spirit shareholders received $425 million in advance payments from JetBlue during the agreement, and that JetBlue will pay Spirit $69 million in connection with terminating the agreement.
The Spirit deal was not JetBlue's first attempt to tie up with another airline to increase its volume. It previously had a partnership with American Airlines In the busy Northeastern United States to coordinate schedules and routes.
But last year, another federal judge sided with the Justice Department and struck down the partnership, calling it anticompetitive. This ruling left open the possibility of amending the structure of the agreement and reviving it.
American appealed the ruling last year, but JetBlue did not, saying it would instead focus on its Spirit deal.
“We will see what opportunities exist to move forward in establishing a new relationship,” US CFO Devon May told reporters at an investor event on Monday.
JetBlue did not immediately comment.
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