A federal judge ruled on JetBlue’s attempt to purchase Spirit Airlines today, January 16th, 2024.
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Somewhat Surprising
In a surprise win for the Biden Justice Department, a federal judge, William Young, blocked JetBlue’s acquisition of Spirit Airlines today in his ruling:
“JetBlue’s plan would eliminate the unique competition that Spirit provides—and about half of all ultra-low-cost airline seats in the industry—and leave tens of millions of travelers to face higher fares and fewer options,” the Justice Department alleged in its lawsuit in March.” – CNBC
This is an argument I have made for more than 18 months, and while I personally surmised that the acquisition would ultimately be approved, it is a valid reason for blocking the combination. Spirit Airlines is unique not only in its size and scope to other Ultra Low Cost Carriers (ULCCs) in North America, but also in its regular flights between major airports including business destinations. This is something that provides healthy downward pricing pressure on international flag carriers in the US.
Spirit Stock Crashes, JetBlue Unchanged
Spirit Airlines shares (SAVE) pluged 60% initially, reducing the airline’s market cap by nearly $1 bn within about five minutes. JetBlue shares jumped around 10% initially before settling back near market open as of this publication.
Spirit has made some moves as of late, selling aircraft and offering voluntary buyouts as it stuggled to capture marketshare. JetBlue has had its own such operational and financial challenges but hasn’t made the same moves yet. JetBlue will owe some amount to the airline to offset its breakup fee though shareholders have gained $.10/share/month since the deal was approved paid by JetBlue.
Appeal?
The Justice Department’s rejection of concessions to allow a path for approval was one that the judge cited as a difficult hurdle to overcome. Ultimately, the DOJ won but not necessarily on that basis. Another judge may find that the two can’t survive independently and must be larger to save US jobs and compete with bigger carriers. JetBlue could argue that the contingency that allowed most other major airline mergers and acquisitions to proceed (giving up gates and key landing slots at busy airports) was more than enough for far larger carriers with a global impact, and that they too should be given the right to survive and grow under the same conditions.
That said, JetBlue Airways CEO, Robin Hayes, is stepping down next month due to health concerns and his (current COO) replacement, Joanna Geraghty, may not have the appetite for another court battle after losing two. Stockholders may wish to see the carrier move on or even file bankruptcy given the breakup fee now due to Spirit if they choose not to appeal.
“The decision leaves New York-based JetBlue grappling with next steps, tasking incoming CEO Joanna Geraghty with steering the airline on a new path. Geraghty was announced as successor to CEO Robin Hayes after he said earlier this month that he would retire.” – CNBC
The proposed $3.8 billion deal would have been larger than their combined market cap prior to the judge’s announcement. This also brings into question Alaska-Hawaiian’s proposed merger, also battling for fifth place in the US air market.
Conclusion
Thsi is a major turning point for both carriers, but more so for JetBlue. Incoming CEO Geraghty will have to decide if the risk is worth fighting in appeallate court or if it’s time to lick their wounds and build for the future with the fleet and staff they have. Time will tell, but Spirit may see a revised offer from Frontier, especially now that the carrier is such a bargain comparatively to the last time they looked to ink a deal.
What do you think?
Both of these airlines are in my Dead Pool for 2024, so I’m quite pleased at the decision.
Airlines must reduce overcrowding to receive my support ; also reduce carry-ons and dogs .
@Kyle isn’t there a danger here that one or both could go bankrupt if they don’t merge?
@Josh – This is a fear, one that some tie to those interested in a merger at-all-costs, but JetBlue had $1.5bn in unrestricted cash and a $600MM credit line in its last quarterly report, Spirit had $1bn in the war chest. Initially, it was thought that Spirit would go bankrupt without a deal, but despite their performance challenges, they have been quick to make changes. They sold 25 jets (they have 101 on order) and offered voluntary buy-outs to employees. JetBlue, at least to my knowledge, hasn’t made the same moves.
Additionally, whatever is left of the $400MM breakup fee (some of which had already been paid to Spirit shareholders) is due from JetBlue to Spirit. So I think a reasonable argument could be made that Spirit is more likely to come out equal or ahead of JetBlue and trimmer in the process (today’s market cap excluded.)
The real problem, is if there’s a bankruptcy and an opportunity to avoid it, where will either carrier (or their peers) turn if they can’t combine and foreign investment isn’t permitted?
Are you so sure? I’ve read notes from several wall street equity analysts today such as Helane Becker, who claims that NK IS in real danger of going Chapter 7 relatively quickly. Why do you think these people who analyze these things for a living are wrong?
@Jason – To go along with your last sentence would suggest a) that people writing those pieces have no ulterior motives, b) that they haven’t been wrong or have been but aren’t this time, c) it assumes a few steps past what’s actually been done.
“Becker explains: “It’s the end of this merger, for the time being, we expect that JetBlue will consider leasing in aircraft, or placing an aircraft order for aircraft, so it can grow organically, although it will take years what Spirit could have done for them. For Spirit, however, we think they’ve got bigger issues. If you look at their income statement, look at their balance sheet, they just raised $418 million in cash by doing tallies transactions on their aircraft, and they have had a lot of unencumbered assets they were able to mortgage, but when airlines have cash flow problems, that kind of argues when you raise a lot of capital for going into chapter 11 sooner rather than later if you’re going to provide your own debtor-in-possession financing, which is what we think Spirit will do.” – (https://www.cnbc.com/2024/01/16/jetblue-spirit-merger-block-in-win-for-bidens-justice-department.html)
But that assumes 1) that mortgaging assets they own free and clear to raise cash is intended solely for bankruptcy purposes and not to raise cash, 2) that their cash flow problems are substantial enough that they are planning to do this imminently. But if they are so clever to attach mortgages to their assets when they are in a good position because they will soon file bankruptcy, why would they offer voluntary exits with generous packages if they are going to file and get away with layoffs without the package? It doesn’t square.
Thanks, Kyle – well written in my opinion, especially when compared to the hyperbola and ‘tabloid’ journalism at OMAAT
LuckyCoins is not a real journalist, anyone who lives in a hotel for a full year is doing it for the clicks and the revenue and not for journalist.
Matthew and Kyle do a better job than most.
he’s also a massive libtard.
He never talks politics in his blogs. You’re just homophobic.
Yes I am
There’s no journalism, I don’t judge anyone’s intentions but the guy is super shallow and naive. The other day I read the post where he got into a situation with a dodgy taxi driver in Saudi Arabia because for some reason he was unable to call an Uber. FFS, he travels for a living and it doesn’t occur to him to spend 10 minutes googling transport options when travelling to an unfamiliar place.
I suppose it can be mildly entertaining to read things like ‘the one time I flew X airline there was no sense of occasion and the champagne they offered me only retails at $32 so I will be avoiding them in the future’. In the UK there’s a Facebook group/twitter account named ‘overheard at Waitrose’ (a pretentious and overpriced UK supermarket), I see OMAAT as the travel blog equivalent of that.
Lucky doesnt claim to be a journalist – just an industry enthusiast. Stop impugning him for something he never claimed to be. Not really sure what it’s been brought up here.
He does try and play armchair CEO though, and that can confuse the casual reader.
He deleted my post when I mentioned something about it’s been awhile since he has reheated his post about “Why you need a Capital One Venture X” lmao.
I’m fascinated by all of this. The position JetBlue is in now is not an easy one. I would love to support them as they are niche and do challenge the Big Three as to service and offerings. The reality being that in DC the options for me are all very shallow and connecting. I guess it comes down to scale. They just can’t seem to break through to offer convenience. Yet they seem to strive to be a global carrier at some point.
At this point I wonder if they should just get bought by Alaska (which would finally get rid of the Alaska brand which is absurd). Again, questionable, as to under the current climate if that could even get approved. But I do see value in having four large carriers versus three (ok, m0re if you count WN). That seems competitive. From there, let Allegiant, Spirit, and Frontier battle it out for the ULCC.
JetBlue may come out ahead in this situation.
Should NK seek Chapter 7 or 11, some of the NK leasing agents may offer NEO airframes to the highest bidder. Also, pilots may jump ship. Other airlines would be in a bidding war, but B6 could pick up new efficient airframes and experienced pilots in the scuffle.
Spirit should call it quits … and quickly. All of those beautiful Airbuses will be up for sale at bargain rates. Other airlines will stampede to purchase those planes. Thus, a happy ending for everyone but Spirit.
now we know why the JB CEO resigned several days ago to “give attention to my health”.
he had NO plan other than this. and This is gone.
…so to preserve a lower cost flying option..they BK Spirit and remove it as an option?