- M&A
- January 17, 2024
- 3 minutes read
US Judge Blocks JetBlue-Spirit Airline Merger
A United States (U.S.) federal judge has blocked JetBlue Airways‘ purchase of rival Spirit Airlines after the Justice Department filed…
A United States (U.S.) federal judge has blocked JetBlue Airways‘ purchase of rival Spirit Airlines after the Justice Department filed a lawsuit opposing the merger on antitrust grounds. A Massachusetts judge blocked the deal on Tuesday, marking a win for the Justice Department, which has lately flexed its muscles opposing deals it deems anti-competitive.
The Justice Department filed its lawsuit in March 2023, alleging that a JetBlue-Spirit merger will increase airfares and reduce air route choices for the public. The agency claimed JetBlue’s acquisition would eliminate the “Spirit Effect,” wherein Spirit’s presence in a market forces rivals to reduce fares.
- Spirit Airlines previously agreed to merge with rival Frontier Airlines until JetBlue launched a hostile takeover bid, initially offering $3.2bn and raising its bid to $3.8bn.
- JetBlue agreed to pay a $470mn breakup fee — $400mn to Spirit shareholders and $70mn to the company itself — if the deal was blocked on antitrust grounds.
Spirit Airlines is an ultra-low-cost airline operating across the U.S., the Caribbean and Latin America. JetBlue is a low-cost airline operating across the U.S., Canada, Mexico, the Caribbean, South America, and Europe.
Spirit has grown rapidly in recent years by offering cheap base fares and add-on fees for everything from carry-on luggage to seat assignments, boarding pass printing, and in-person check-in. However, it has struggled to turn a profit amid high operating costs and supply chain constraints.
Spirit’s shares fell 47% on Tuesday after the judge blocked the deal, while JetBlue’s shares rose 5%. The scuttled acquisition leaves Spirit with a few options as an independent company and at risk of bankruptcy.
Federal judge William Young said that a JetBlue-Spirit merger would place “stronger competitive pressure” on large domestic air carriers but that “the consumers that rely on Spirit’s unique, low-price model would likely be harmed.” He said the merger would increase Spirit’s fares and its ability to pressure competitors to reduce fares.
“The government has demonstrated that consumers value Spirit flights as a unique, economical product option,” Young said. “The removal of Spirit as an option for consumers, therefore, would constitute a cognizable harm.”
- In a joint statement, JetBlue and Spirit said they were considering “next steps as part of the legal process.”
- Both airlines can appeal the federal judge’s ruling. Notably, Young said he blocked the deal “as it currently stands” but didn’t grant the Justice Department’s request to prohibit any possible merger of the two companies. “The courthouse doors remain open, should the defendant airlines decide to try again,” he said.
