JetBlue Airways has signaled the possibility of terminating its bid to acquire low-cost carrier Spirit Airlines in the coming days, causing a decline in Spirit’s shares. The move comes in light of a federal judge’s injunction against the deal, resulting in a significant drop in Spirit’s stock value.
Following the legal setback, JetBlue cautioned that it might not be able to meet certain conditions outlined in the 2022 agreement with Spirit, potentially leading to the termination of the deal as early as this weekend. Conversely, Spirit expressed its commitment to fulfilling its obligations under the agreement and expects JetBlue to do the same. The airlines have both initiated the process of appealing the court’s decision.
The Justice Department had filed a lawsuit to block JetBlue’s proposed acquisition of Spirit, emphasizing concerns that the merger would result in increased airfares by eliminating the nation’s largest low-cost airline. This led to the court ruling in favor of the government, prompting further uncertainty regarding the deal’s future.
As a consequence of these developments, Spirit’s stock experienced a 13.4% decline, while JetBlue’s shares saw a 3.6% increase. JetBlue’s rationale for pursuing the acquisition was centered on the need to expand rapidly and enhance its competitive position in the U.S. air-travel market, which is currently dominated by larger carriers. Despite the potential benefits of the merger, both JetBlue and Spirit have faced financial challenges and a slower recovery from the pandemic compared to other airlines.
Spirit Airlines has encountered issues such as escalating costs, weaker demand for its budget-friendly fares combined with higher fees, and the grounding of numerous Airbus jets due to engine problems. Additionally, the airline faces the task of addressing $1.1 billion in debt due next year, necessitating a viable payment or refinancing strategy.
Notably, Spirit had previously sought to merge with Frontier Airlines before JetBlue outbid Frontier, signaling the airline’s persistent efforts to solidify its position in the industry. In the event that the acquisition is hindered by regulatory opposition, JetBlue could be obligated to pay a $470 million reverse breakup fee, comprising $70 million to Spirit and $400 million to its shareholders.
