The Wall Street Journal reports that Spirit Airlines is talking to its creditors about a strategic bankruptcy filing as the beleaguered budget carrier struggles to find profitability after its merger with JetBlue was blocked. With Spirit already massively scaling back its winter schedule and now considering bankruptcy, I blame Judge William Young for his foolish and shoddy legal reasoning.
Spirit Airlines Discusses Bankruptcy Terms With Its Creditors
Having reported no profit since before the pandemic, Spirit Airlines has been evaluating a Chapter 11 restructuring versus an out-of-court transaction. Its problem is not just declining revenue, but servicing of its USD 3.3 billion in debt, about a third of which will be due within a year. It also must refinance or extend the notes of its credit card processor within three weeks.
In August, Spirit Airlines CEO Ted Christie refused to answer any questions over this:
“Because those conversations are ongoing, we are not going to go into detail or take any questions on this topic or speculate on potential outcomes. Needless to say, it is a priority and we are focused on securing the best outcome for the business as quickly as possible.”
But it was clear to most behind the scenes that Spirit was exploring that option.
On the consumer side, Spirit Airlines is slashing its schedule, with many route cuts and an overall reduction of flying by 20% in November and December compared to 2023.
And for all this, I blame US District Judge Wiliam Young.
Why Do I Blame Judge Young For Spirit’s Mess?
In January, Judge Young held that the JetBlue-Spirit merger could not proceed because it violated the Clayton Act. The heart of his ruling:
While it is understandable that JetBlue seeks inorganic growth through acquisition of aircraft that would eliminate one of its primary competitors, the proposed acquisition, in this Court’s attempt to predict the future in murky times, does violence to the core principle of antitrust law: to protect the United States’ markets –- and its market participants — from anticompetitive harm.
The Clayton Antitrust Act of 1914 was meant to curb mergers and acquisitions that tended to create monopolies to the detriment of US consumers. Specifically, §7 of the Act prohibits mergers when “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”
Seizing on this, Judge Young pointed to specific anecdotes, like “a college student in Boston hoping to visit her parents in San Juan or a large Boston family planning a vacation to Miami that can only afford the trip at Spirit’s prices” to argue, “It is this large category consumers, those who must rely on Spirit, that this merger would harm.”
The close of his opinion reads like the pronouncement of a politician, not a neutral arbiter of the law:
Spirit is a small airline.
But there are those who love it.
To those dedicated customers of Spirit, this one’s for you.
Why?
Because the Clayton Act, a 109-year-old statute requires this result –- a statute that continues to deliver for the American people.
The problem is that “love” for Spirit Airlines should not govern whether a merger between JetBlue and Spirit should proceed. Nor should it matter whether customers currently rely on Spirit Airlines for transport, especially when the company is losing millions of dollars, suggesting a business model that is broken.
The key word here is substantial. Would there be a “substantial lessening of competition” because of this merger? I don’t see this proven by the US Government or its expert witnesses. Rather, I see such forecasts as inconclusive and therefore unpersuasive. There remains tremendous competition in the US airline industry. This is not like the only two market entrants are merging into one: there remains robust competition and the idea that a larger JetBlue could challenge American, Delta, United, and Southwest was glossed over by Judge Young.
Ultimately, The Clayton Act is not about maintaining cheap and unsustainable pricing, but about protecting consumers from the nefarious effects of collusion aimed at undercutting the market system. Judge Young got it wrong.
And now we see the fruit of his poor legal analysis: a JetBlue struggling to survive and Spirit Airlines struggling to survive. I’m not personally in favor of any merger, generally…I like the status quo and I like as much competition as possible. But it became clear to me that Spirit and JetBlue were better together. Sure, the Spirit and JetBlue business models were very different in many ways, but the aircraft overlap and the need to create a larger competitor to the entrenched legacy network carriers would have ultimately served consumers a lot more.
While Spirit Airlines is certainly not going out of business, it is shrinking and so is JetBlue. The result for consumers is the same: they pay more to get where they need to go (indeed, Untied CEO Scott Kitby is gleeful about this).
The federal government and Judge Young not only made a bad situation worse, but poorly analyzed the facts and misapplied the law. As Spirit Airlines inches closer to bankruptcy, you have them to thank.
Chapter 11 is the friend of the airlines.
Many of the legacy carriers (except Southwest) have visited the courthouse at one time or another.
TWA has the distinction of making three visits (Chapter 33).
This is a correct characterization. Judge Young, to quote Andy Dufresne, “How can you be so obtuse?”
It goes beyond Judge Young, it’s the current administration that sets the anti business tone. The Biden administration believes everyone is a victim so something that was crucial for the financial survival of the company was rejected.
In their mind it’s better to let them fail and then need government assistance. Of course it makes no sense but it’s how this administration thinks.
Also why is this old bastard still a judge? He graduated from Harvard in 1962, before most of us were born. He was born in 1940 and probably jacked off to Mamie Eisenhower as a kid. Why is this guy still making important decisions in 2024?
The new Spirit offerings for pseudo-First and the three rows of “Euro-Business” would have probably meshed nicely with where JetBlue wants to go on its narrowbodies.
But absolutely correct – this is a judge who needs to go to pasture working on a very weak argument from DOJ. Now everyone is worse off. Especially the creditors.
Chapter 11 is a tool. At this point much of the value for Spirit is probably sending the paperweights with non-functioning engines back to the lessors to deal with.
This article about the judge is obtuse. If a merger was expected to violate the intent of the Clayton Act, it should not go through regardless of merger or not. It’s like saying the US Government is reponsible for UA bankrupcy because it could not merge with US Airways. Nonsense.
First, bankrupcy is not liquidation. There might still be NK routes flying NK aircraft at NK price after Chapter 11.
Second, noone can tell whether JetBlue will / will not go through Chapter 11 as a whole had it merged with NK
Third, what happened downstream is entirely irrelevant. Had the managers spent their energy trying to be profitable rather than trying to get a bonus through a merger, NK might still be profitable. There is no reason for F9 to be in better position than NK except for NK’s inability to sort its mess itself.
Conclusion: useless article not worth the electron spent writing it.
On point. The shareholders & BoD got greedy & turned into a B6 head wind. They put themselves in this position. Pretending to be a victim of a judge is really just a press deflection from the reality of Plan C. If B6 didn’t call & raise, the Frontier merger was approved, we still may we’ll be here since they’re a lead balloon.
@Minos: or maybe the same could be said about your comment and analysis…
It was the JetBlue folks who foolishly overpaid for Spirit…NK would have been stupid not to take the deal.
And Spirit has tried everything and is working now to reinvent its business model. Fact is, it is simply being edged out by network carriers trying to starve it out.
Furthermore, you fail to understand my grip with Judge Young is not about whether the merger was a good or bad thing, but whether it was permitted under the law. The DOJ failed to show, woefully in my opinion, that it would adversely impact consumers.
@Sam: again, not the NK folks who got so greedy…that was B6…but also understandable since B6 is in a grow or die short of spiral.
NK took a deal that was unlikely to get accepted and that did not make any sense on paper or otherwise, except for in the money stock options of the C-suite. What was the plan-B?
You can’t blame the judge for that. Blaming the judge for that is indeedobtuse.
Or, we could blame the airline for running a poor operation, having bad customer service, loyalty program, and product?
I’m not saying that is not part of this – but that would have been addressed in a merger with JetBlue. Now Spirit is trying to go it alone with so many customer-friendly changes that may be too little, too late.
Would it? You’d have had one company that is doing badly merging with another company that also isn’t doing as well and also seems to be in search of an identity. For all we know, the merged company would have taken the worst attributes of both companies and we end up with a larger company that is still a mess.
And let’s add that the merger with F9 would likely have been approved as F9 was not touting left and right that the objective was to remove seats and raise airfares.
However corporate greed, corporate appeal of bonus and in the money options decided otherwise. Instead, they went for a rocky merger that did not make any sense on paper except for the removal of competition – in pricing-segments where the two were not even competing..
NK upper managment can blame themselves for this mess. Blaming te judge is entirely obtuse.
You’re repeating yourself…
The judge rightly pointed out that the intent of teh merger was to remove competition and that the travel public was worse of. Your opinion does not matter. It was a fact and it was identified by the judge and by JetBlue that decided to get away from the deal as there was no viable path forward. End of story. No reason to blame the judge for being obtuse.
Legacy can’t compete on price with NK. Yet, NK needs to compete on price because this is the only differentiator they have. $19 ticket to Orlando is not compelling once you add all the addons and when NK charges over $100 for bags. All in all, Delta basic-eco is marginally more expensive than Spirit unless you travel only with a backpack. Sorry, this is not ULCC territory. ULCC need to have a price point that DL can’t even remotely match.
They should look at Ryanair to be successfull. No reason they can’t replicate what they have tried to copy from the start.
Biden is at fault for harming Spirit, JetBlue, and a little for AA. Biden sets the tone about making the rich pay their fair share, too.
I like Uncle Joe but even Obama knew Joe is barely competent even when he was young. Biden was at the bottom of his class and picked Harris even though Harris unfairly attacked him during the debates when she was running. Biden should have picked Bloomberg or Buttigieg, who would have been the first VP in a gay marriage.
Oh, boo hoo. NK deserves to die for encouraging low-lifes and trailer trash to inhabit our airports. B6 deserves to die for geing the hometowm airline for Noo Yawk Yankers and Massholes, the urban version of NK Trailer Trash. F9 deserves to use for putting stupid animals on our rails. The US can support five aurlines. That would be he Big Four and Alaska. The others can die.
Politics at play AS+HA goes through while this merger was killed.