Antitrust freezes JetBlue, Spirit Airlines $3.8 billion merger

By David Shepherdson and Audrey Dasgupta

WASHINGTON (Reuters) – Low-cost carriers JetBlue Airways and Spirit Airlines scrapped their $3.8 billion merger deal on Monday, with no path moving forward after a U.S. judge blocked the deal in January over anti-competitive concerns.

A successful deal would have created the fifth-largest carrier in the U.S. and ensured Spirit's survival as it burns through cash and struggles with its debt pile. But the merger has been on the ropes since a Boston judge said it harmed consumers by reducing competition.

The decision was a victory for the Biden administration, which has taken a hard line against tie-ups in the airline industry and argued the deal would raise ticket prices for consumers.

U.S. Attorney General Merrick Garland called JetBlue's decision “another victory for the Department of Justice's work on behalf of American consumers,” adding that the merger “will leave tens of thousands of travelers facing higher fees and fewer choices.”

The administration used antitrust action and other enforcement efforts to try to lower prices for U.S. residents in many industries.

“Given the federal court's ruling and continued opposition from the Justice Department, the likelihood of getting the green light to move forward with the merger anytime soon is slim,” JetBlue CEO Joanna Geraghty said in an internal memo seen by Reuters.

“Even if the ruling is overturned on appeal, we don't see a path to regulatory approval by the required July 24 deadline.”

Privately, JetBlue executives expressed relief that the deal was blocked because of Spirit's deteriorating financial situation, a person familiar with the matter said. If the companies win their antitrust battle, JetBlue is considering using a “material adverse change” clause in its deal with Spirit to walk away from the deal, citing the latter's declining fortunes, the source said.

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In a statement, Spirit CEO Ted Christie said, “We have determined that current regulatory barriers will not allow us to complete this transaction in a timely manner under the terms of the merger agreement.”

Under the deal, JetBlue will pay Spirit $69 million. While the merger agreement was in effect, Spirit shareholders received an aggregate advance of approximately $425 million.

Without the JetBlue deal, Spirit, the seventh-largest U.S. carrier, faces a tough road ahead. The ultra-low-cost carrier is grappling with weak demand in its core markets as it seeks to return to sustainable profitability. Some analysts have suggested that the company could face bankruptcy if it is unable to raise funds.

Shares of Spirit fell 14% in morning trading, while shares of JetBlue, America's sixth-largest carrier, rose 4%.

U.S. District Judge William Young's ruling found that the proposed deal would harm competition in the U.S. airline market and raise ticket prices.

That prompted JetBlue to raise questions about the future of its deal, saying it may not be able to meet certain conditions required as part of the deal.

JetBlue did not intend to appeal a separate ruling that declared its Northeast partnership with American Airlines anti-competitive.

JetBlue, which raised baggage fees last month, said it was making several near-term initiatives to boost revenue by more than $300 million and was on track to deliver $175-200 million in cost savings and $75 million from its structural cost plan. Maintenance savings from its fleet modernization.

A judge in May sided with the Justice Department and six states in a lawsuit challenging American and JetBlue's 2020 joint venture to combine flights in and out of New York City and Boston, known as the “Northeast Alliance.” Schedules and Revenue Accumulation.

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Spirit said it is taking steps to strengthen its balance sheet and current operations and has retained Perella Weinberg & Partners and Davis Polk & Wardwell as advisors.

(Reporting by Audrey Dasgupta in Bengaluru and David Shepherdson in Washington; Editing by David Kaffen, Devika Syamnath, Arun Koyur and Nick Zieminski)

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