JetBlue Airways and Spirit Airlines are officially calling off their $3.8 billion merger attempt, the companies said Monday, just weeks after a federal judge blocked the deal.
The U.S. Department of Justice had sued to block the proposed merger, arguing that customers would be harmed and forced to pay higher fares if Spirit was acquired. The deal would have merged the nation’s nation’s sixth- and seventh-largest carriers. JetBlue had said it needed to take over Spirit to more effectively compete with bigger airlines.
After the deal was blocked, the carriers said they would appeal the ruling, although analysts doubted that would succeed. Under the companies’ agreement, JetBlue will pay Spirit $69 million and resolve all outstanding matters related to the deal, such as the appeal. While the merger agreement was in effect, Spirit shareholders received about $425 million in total prepayments, according to the airline.
“We are disappointed we cannot move forward with a deal that would save hundreds of millions for consumers and create a real challenger to the dominant ‘Big 4’ U.S. airlines,” Spirit Airlines CEO Ted Christie said in a statement. “However, we remain confident in our future as a successful independent airline.”
The official termination of the deal may put the final nail in the coffin for Spirit, which has been losing money since the start of 2020. After the merger was blocked in court, analysts suggested the company may face bankruptcy. The company is trying to refinance $1.1 billion in debt due for payment in September 2025 and recorded a net loss of $183 million for 2023.
“A more likely scenario is a Chapter 11 filing, followed by a liquidation,” Helane Becker, a veteran airline analyst for Cowen, wrote in January. “We recognize this sounds alarmist and harsh, but the reality is we believe there are limited scenarios that enable Spirit to restructure.”
Almost two years ago, JetBlue approached Spirit with an unsolicited takeover bid, eventually beating out a smaller rival, Frontier Airlines, to secure a deal.
“We are proud of the work we did with Spirit to lay out a vision to challenge the status quo, but given the hurdles to closing that remain, we decided together that both airlines’ interests are better served by moving forward independently,” JetBlue CEO Joanna Geraghty said in a statement.
Like Spirit, JetBlue has been losing money for years as it faces stiffer competition on domestic travel.
In January, JetBlue said it expects revenue for the first quarter of 2024 to drop between 5% and 9%, while capacity for that period will be down as much as 6%. The carrier also reported a net loss of $104 million for the last three months of 2023, compared to a $24 million profit year-over-year.
JetBlue stock lurched up by more than 6% in premarket trading Monday before trading up a little more than 1% after the market opened. Spirit stock plunged 13% in pre-market trading and was down about 10% by mid-morning.