JetBlue’s $3.8 billion buyout of Spirit Airlines is blocked by judge citing threat to competition
DALLAS– A federal judge sided with the Biden administration on Tuesday and blocked JetBlue Airways from buying Spirit Airlines, saying the $3.8 billion deal would reduce competition.
The Justice Department had filed a lawsuit to block the merger, saying fares would rise if Spirit, the country’s largest low-cost carrier, were eliminated.
U.S. District Judge William Young, who presided over a non-jury trial last year, said Tuesday that the government had proven the merger would “significantly reduce competition” and violate a century-old antitrust law.
In his ruling, which ran to more than 100 pages, the judge winked at the Justice Department’s argument that Spirit is especially important for travelers looking for an alternative to more expensive airlines.
“Spirit is a small airline. But there are people who love it,” he wrote. “To those dedicated Spirit customers, this one is for you.”
Young said a JetBlue-Spirit combination “would likely place greater competitive pressure on the larger airlines in the country. At the same time, consumers who rely on Spirit’s unique, low-cost model would likely be harmed.”
The shares of Spirit Airlines Inc. fell 47% after the ruling, while JetBlue shares rose 5%.
JetBlue and Spirit said they disagreed with the ruling and were considering whether to appeal.
New York-based JetBlue had argued it needs to grow the deal all at once and better compete with larger rivals that dominate the U.S. aviation market.
“We continue to believe that our combination represents the best opportunity to increase much-needed competition and choice by bringing low fares and great service to more customers in more markets,” the airlines said in a statement.
The ruling was a victory for the Biden administration, which has taken aggressive action to block consolidation in several sectors.
“Today’s ruling is a victory for tens of millions of travelers who would have received higher fares and fewer choices” had the deal gone through, Attorney General Merrick Garland said.
For JetBlue, the ruling was the second major setback in federal court in less than a year. Another judge in the same Boston courthouse struck down a partnership in the Northeast between JetBlue and American Airlines.
JetBlue, the nation’s sixth-largest airline by revenue, must now come up with another growth plan. That will be a task for incoming CEO Joanna Geraghty. Next month she will replace Robin Hayes, who brokered both deals that have now been blocked by the courts.
Tuesday’s ruling could open the door for Frontier Airlines to make another attempt to buy Spirit. The two budget airlines announced a cash-and-stock deal in 2022, but JetBlue made an all-cash offer and won a bidding war for Florida-based Spirit.
Spirit’s CEO and board initially opposed a sale to JetBlue, presciently arguing that regulators would try to block a deal that would eliminate a low-cost airline from the American landscape – JetBlue planned to repaint Spirit’s planes and removing some seats to match JetBlue’s more spacious interior.
To overcome that resistance, JetBlue agreed to pay Spirit a $70 million reverse breakup fee and to pay Spirit shareholders $400 million if the deal fell through due to government opposition.
Helane Becker, an aviation analyst for financial services firm Cowen, said Spirit would now likely look for a new buyer, but it was more likely to file for bankruptcy restructuring.
Both JetBlue and Spirit have struggled to recover from the pandemic, while their larger rivals have returned to healthy profitability. JetBlue has lost more than $2 billion since the start of 2020, and Spirit — burdened by higher costs and weaker demand — has lost more than $1.6 billion in that time.
That aroused some sympathy for a merger between them – and criticism of the judge’s ruling.
“Blocking a merger of smaller competitors trying to pool resources and scale to compete with the four largest airlines makes little sense,” said Jessica Melugin, an antitrust expert at the Competitive Enterprise Institute, which opposes government intervention in the market. making both Spirit and JetBlue less able to compete with the big boys and ultimately making the airline industry less competitive, which hurts consumers.”
But the decision was praised by critics of mergers over the past 15 years that have eliminated Continental, Northwest, US Airways, AirTran and Virgin America.
“This is a huge victory for travelers, workers and local communities, and another huge victory for antitrust enforcers” at the Justice Department, said William McGee, an air travel expert at the American Economic Liberties Project.
The administration’s victory could make it more likely that it will challenge Alaska Airlines’ proposal to buy Hawaiian Airlines for $1 billion and raise about $900 million in Hawaiian debt.
“The days of ruthless consolidation are over. We hope that judges presiding over future airline mergers, such as Alaska-Hawaiian, will follow Judge Young’s example,” McGee said.
The government has not yet said whether it will file a lawsuit to stop Alaska from purchasing Hawaiian. However, the attorney general might have been able to slap him. “The Department of Justice will continue to vigorously enforce the nation’s antitrust laws to protect American consumers,” Garland said.
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This story has been clarified to note that a statement originally attributed to JetBlue came from JetBlue and Spirit.