News Mar 05, 2024 12:14 AM EST

JetBlue and Spirit Terminate $3.8 Billion Merger Agreement Following Court Ruling

By April Fowell

Spirit Airlines and JetBlue Airways are calling off their planned $3.8 billion merger, citing concerns that it will harm customers who rely on Spirit's more affordable flights, after a federal judge's decision to ban the agreement.

(Photo : by CHARLY TRIBALLEAU/AFP via Getty Images)
Spirit Airlines and JetBlue Airways are calling off their planned $3.8 billion merger, citing concerns that it will harm customers who rely on Spirit's more affordable flights, after a federal judge's decision to ban the agreement.

JetBlue said on Monday that although both firms remain optimistic about the deal, it is doubtful that they will fulfill the closing requirements stipulated in the agreement by the deadline of July 24.

Joanna Geraghty, the recently appointed CEO of JetBlue, described the merger as "a bold and courageous plan intended to shake up the industry status quo" and accelerate the airline's expansion.

"Given the federal court's ruling and the ongoing resistance from the Department of Justice, the likelihood of receiving approval to proceed with the merger in the near future is exceedingly slim," remarked Geraghty in a memorandum addressed to employees of the New York airline. She expressed concern that the uncertainty surrounding the merger's prospects was diverting the airline's focus from its endeavors to regain profitability.

Although he expressed disappointment that the airlines were unable to unite and form a new rival to the country's four largest carriers, Spirit CEO Ted Christie expressed confidence in Spirit's ability to thrive independently. Spirit has been losing money since the epidemic began.

Spirit will get a $69 million termination fee from JetBlue. Last year, the Justice Department filed a lawsuit to prevent the merger, claiming it would lessen competition and raise costs, particularly for passengers who rely on Spirit's inexpensive flights.

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Legal Battles and Merger Fallout

In January, a federal district judge in Boston ruled in favor of the government, blocking the proposed deal on grounds of antitrust violations. On Monday, the Justice Department celebrated the decision.

Attorney General Merrick Garland remarked in a statement, "Today's decision by JetBlue is yet another triumph for the Justice Department's advocacy on behalf of American consumers. The Justice Department demonstrated in court that a merger between JetBlue and Spirit would have resulted in higher fares and diminished options for tens of millions of travelers. We remain committed to robustly upholding the nation's antitrust laws."

The airlines filed an appeal of the decision, and a hearing in the First U.S. Circuit was scheduled for June. Boston Circuit Court of Appeals.

A prior alliance between JetBlue and American Airlines on flights in New York and Boston was terminated by the Biden administration's Justice Department, which has battled against concentration in a number of sectors.

Early in 2022, Spirit and Frontier Airlines proposed a $2.2 billion merger that would have brought together two comparable airlines that provide cheaper rates than the major players in the market but tack on surcharges that account for a sizable portion of their earnings.

The management of Spirit cautioned that it would be challenging to obtain regulatory permission for a Spirit-JetBlue combination, so JetBlue entered the battle against their preferences. A few months later, JetBlue defeated competitor Frontier in a bidding battle that was held in front of Spirit's shareholders, bypassing the company's board of directors.

Spirit, a company situated in Miramar, Florida, was experiencing ongoing losses and other issues while the acquisition was developing and going through the legal system. JetBlue sent a warning around the end of January that it would end the contract.

JetBlue has experienced financial losses as well and is facing an uncertain future. In addition to winning two seats on the JetBlue board last month, activist investor Carl Icahn purchased about 10% of the company's equity.

The cancellation of the JetBlue-Spirit merger begs the issue of whether Alaska Airlines can finance the $1 billion acquisition of Hawaiian Airlines, which would have included taking on debt of around $900 million. Whether it will file a lawsuit to halt that arrangement has not been disclosed by the Justice Department.

In late morning trading, shares of JetBlue Airways Corp. marginally increased, while shares of Spirit Airlines Inc. fell 16%.

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