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By David Shepardson and Aatreyee Dasgupta
WASHINGTON (Reuters) – Low-cost airlines JetBlue Airways and Spirit Airlines called off their $3.8 billion merger deal on Monday, seeing no way forward after a U.S. judge blocked the deal in January on anti-competitive grounds. .
A successful deal would have created the fifth-largest airline in the United States and helped Spirit ensure its survival, but the deal had been on the rocks since a Boston judge said it would harm consumers by reducing competition.
The decision is a victory for the Biden Administration, which has taken a hard line against alliances in the aviation sector and argued that the agreement would increase ticket prices for consumers.
U.S. Attorney General Merrick Garland said JetBlue’s decision “is yet another victory for the Justice Department’s work on behalf of American consumers,” saying the merger “would have caused tens of millions of travelers to have have to face higher rates and fewer options.
The administration has used antitrust and other law enforcement efforts to try to reduce prices for U.S. residents in several industries.
“With the federal court ruling and continued opposition from the Department of Justice, the likelihood of getting the green light to move forward with the merger in the near term is extremely low,” JetBlue CEO Joanna Geraghty told employees. in an internal memo seen by Reuters.
“Even if the ruling were overturned on appeal, we simply do not see a path to regulatory approval before the required July 24 deadline.”
Spirit CEO Ted Christie said in a statement: “We have concluded that current regulatory hurdles will not allow us to close this transaction in a timely manner under the merger agreement.”
Under the agreement, JetBlue will pay Spirit $69 million. While the merger agreement was in effect, Spirit shareholders received approximately $425 million in total advance payments.
Without the deal with JetBlue, Spirit, the seventh-largest airline in the United States, faces a difficult road ahead. The ultra-low-cost airline has grappled with weak demand in its key markets as it seeks to return to sustainable profitability. Some analysts have even suggested that the company could face bankruptcy if it cannot recover its finances.
Shares of Spirit fell 14% in morning trading, while those of JetBlue, the sixth-largest airline in the United States, rose 4%.
U.S. District Judge William Young’s ruling found that the proposed deal would likely harm competition in the U.S. aviation market and could increase ticket prices.
That led 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 opted not to appeal a separate ruling that had declared its Northeast partnership with American Airlines anticompetitive.
JetBlue, which last month raised baggage fees, said it is working on numerous near-term efforts to increase revenue by more than $300 million and said it is on track to generate between $175 million and $200 million in savings. of costs from its structural cost program and $75 million in maintenance savings thanks to the modernization of its fleet.
In May, a judge sided with the Justice Department and six states in a lawsuit challenging the joint venture American and JetBlue formed in 2020, called the “Northeast Alliance,” which joins forces for flights in and out of the United States. New York City and Boston, coordinating schedules and pooling income.
Spirit said it was taking steps to ensure the strength of its balance sheet and ongoing operations and hired Perella Weinberg & Partners and Davis Polk & Wardwell as advisors.
(Reporting by Aatreyee Dasgupta in Bengaluru and David Shepardson in Washington; Editing by David Gaffen, Devika Syamnath, Arun Koyyur and Nick Zieminski)