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JetBlue pulls out of deal to buy Spirit Airlines

Patrick T. Fallon/AFP/Getty Images

JetBlue Airways announced Monday it is pulling out of its deal to purchase Spirit Airlines.

The decision comes in the wake of a federal court ruling blocking the deal from taking place on antitrust grounds. The Justice Department had argued that airfares could go up if Spirit was no longer an independent airline.

Spirit has been a leader in the segment of the airline industry that offers very low, no-frills base fares that required passengers to pay extra for everything, including carry-on baggage.

JetBlue agreed to pay Spirit $69 million as part of its decision to end the deal, JetBlue said.

While the companies had appealed the judge’s ruling blocking the deal, JetBlue and Spirit both issued statements saying it had become clear they wouldn’t be able to overcome the legal obstacles to complete the merger.

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“Given the hurdles to closing that remain, we decided together that both airlines’ interests are better served by moving forward independently,” said JetBlue CEO Joanna Geraghty.

Spirit said it was always prepared to continue as an independent airline, given the regulatory challenges the deal faced.

“We are disappointed we cannot move forward with a deal,” Spirit CEO Ted Christie said. “However, we remain confident in our future as a successful independent airline.”

The decision could spark a new bidding war for Spirit. There is even the possibility that it could lead to a bankruptcy filing and liquidation for Spirit, according to at least one airline analyst. Spirit has struggled with losses for several years as larger airlines have returned to profitability since demand for flying resumed after the height of the pandemic.

JetBlue had signaled it might pull out of the deal in a January filing with the Securities and Exchange Commission, shortly after the judge’s decision. It has been clear for months that Spirit is no long worth the $3.8 billion, or $33.50 a share, that JetBlue agreed to pay for the airline.

Even before federal Judge William Young issued the ruling blocking the deal, a decision that sent the price of Spirit shares plunging, its shares were trading at half the purchase price, or less, over course of the last six months, and only two-thirds of the price at the time the deal was agreed upon in July 2022.

Shares of Spirit closed Friday at $6.46 a share, giving it a market cap of just over $700 million. Its shares are down 75% from the closing price the day the deal was originally announced, and they fell another 10% in premarket trading Monday on the news. Meanwhile shares of JetBlue rose 3% in premarket trading on news that the deal was off.

Airline analysts from JPMorgan Chase believe that while JetBlue might still interested in expanding, it likely wanted to walk away from the $3.8 billion deal as originally crafted even before the judge’s decision.

“We believe JetBlue was wholly unprepared (or unwilling) to proceed with the originally-crafted deal economics (the price was simply just too much to pay),” the JPMorgan analysts wrote in that note the day of the court decision.

That section of the note had the headline “JetBlue dodges a bullet.”

What Spirit means for fares on other airlines

The US airline industry has gone through more than 20 years of mergers and consolidation before this deal was announced.

The 10 major airlines that existed in 1999 have been combined into four major carriers — American Airlines, United, Delta Air Lines and Southwest Airlines — through a series of deals, often done as part of a bankruptcy proceeding. Those four large carriers carry about 80% of the nation’s air traffic.

The mergers have resulted in a much more profitable US airline industry, but far fewer choices for US air travelers, which can result in higher fares.

The Biden administration has taken a much more aggressive approach in fighting mergers and combinations, including in the airline industry. Besides successfully fighting this deal in court, it also objected to an alliance between JetBlue and American Airlines, an alliance that was dropped as JetBlue pursued this deal.

Since the rise of Spirit, the four biggest US airlines – American Airlines, Southwest Airlines, Delta Airlines and United Airlines – have since created a class of seats on their planes that more closely mirrored Spirit’s frill-free offering, a “basic economy” seat. But they were also making a significant portion of their money by selling seats with a more premium service, including first class, business class, and economy-plus seats.

But while its customers might have liked its fares, Spirit was regularly at or near the top in customer complaints about the service, according to Transportation Department reports. And with its fare structure and other issues, Spirit has found it difficult to return to profitability the way the larger carriers have.

And if analysts who doubt Spirit’s ability to survive prove to be correct, the end of this deal could lead to a closure of the airline and the loss of 13,000 jobs at Spirit, along with the higher fares that it sought to avoid by blocking the deal.

Spirit reported an adjusted loss of $359.5 million in 2023, nearly double the $189.4 million it lost in 2022. Analysts forecast it will lose nearly $300 million more this year and $174 million in 2025.

JetBlue has also been mired in losses since the pandemic as well, reporting an adjusted loss of $151 million in 2023, although that was an improvement from the $260 million it lost in 2022. Still, it faces its own challenges going forward, including activist investor Carl Icahn buying a 10% stake in the company and announcing plans to win two seats on its board of directors for his allies at the upcoming shareholders’ meeting.

This story has been updated to add additional reporting and context.

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