JetBlue Airways and Spirit Airlines on Monday said they’re ending their agreement to merge, weeks after losing a federal antitrust lawsuit that challenged the deal.
The CEOs of the 2 carriers cited regulatory hurdles in ending their merger agreement.
A federal judge in January sided with the Justice Department and blocked JetBlue’s attempted takeover of budget carrier Spirit. In his ruling, Judge William Young said JetBlue’s takeover of Spirit would “harm cost-conscious travelers who depend on Spirit’s low fares.” The airlines had argued that they needed to mix to higher compete with the larger airlines that control many of the U.S. market.
JetBlue and Spirit had appealed the judge’s decision, but JetBlue noted the appeal was required under the terms of the merger agreement. Analysts had expected little likelihood of a successful appeal.
The Justice Department cheered the news on Monday, a 12 months after it filed its suit to dam the deal. “Today’s decision by JetBlue is one more victory for the Justice Department’s work on behalf of American consumers,” Attorney General Merrick Garland said in an announcement.
Spirit’s shares tumbled almost 11% on Monday to finish the trading session at their lowest closing price on record, $5.76 per share, while JetBlue’s stock closed greater than 4% higher at $6.75.
Almost two years ago, JetBlue swooped in with an unsolicited bid for Spirit Airlines, which had weeks earlier struck a merger agreement with fellow budget airline Frontier. JetBlue ultimately won Spirit shareholder approval to take over the discount carrier.
“It was a daring and courageous plan intended to shake up the industry establishment, and we were right to compete with Frontier and go for a possibility that will have supercharged our growth and provided more opportunities for crewmembers,” JetBlue CEO Joanna Geraghty said in a note to staff on Monday.
“Nonetheless, with the ruling from the federal court and the Department of Justice’s continued opposition, the probability of getting the green light to maneuver forward with the merger anytime soon is amazingly low,” she said.
Geraghty took over as CEO from Robin Hayes last month, tasked with stopping JetBlue’s losses, improving its operation and trimming costs. Activist investor Carl Icahn disclosed a virtually 10% stake within the airline on her first day, and days later won two board seats on the Latest York-based airline.
JetBlue’s prospective purchase of Spirit would have been a buoy for the struggling discounter airline, which is facing the grounding of dozens of its Airbus planes for inspections stemming from a Pratt & Whitney engine defect. Spirit expects compensation from the engine-maker in consequence of the flaw.
With the deal off the table, Spirit must confront its financial problems alone, something its leaders say it is provided to do.
The corporate said it was working to refinance its debt, and last month said it was on a path back to profitability due to better-than-expected demand. It projected revenue for the primary quarter above analysts’ expectations.
“Throughout the transaction process, given the regulatory uncertainty, now we have all the time considered the opportunity of continuing to operate as a standalone business and have been evaluating and implementing several initiatives that may enable us to bolster profitability and elevate the Guest experience,” Spirit CEO Ted Christie said Monday.
He said that Spirit shareholders received $425 million in prepayments from JetBlue through the agreement, and that JetBlue can pay Spirit $69 million related to the agreement’s termination.
The Spirit deal wasn’t JetBlue’s first attempt at linking up with one other airline to realize scale. It previously had a partnership with American Airlines within the congested Northeast U.S. to coordinate schedules and routes.
But last 12 months a unique federal judge sided with the Justice Department and knocked that partnership down, calling it anticompetitive. That ruling left open the opportunity of tweaking the structure of the agreement and reviving it.
American appealed the ruling last 12 months, but JetBlue didn’t, saying it might as an alternative give attention to its Spirit deal.
American CFO Devon May told reporters at an investor event on Monday: “We’ll see what opportunities there are going forward of getting a latest relationship.”
JetBlue didn’t immediately comment.
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