JetBlue, Spirit call off $3.8 billion merger; what's the impact on South Florida airports?
The JetBlue-Spirit merger is dead.
Both airlines announced Monday they are calling off the $3.8 billion deal, just eight days after they had filed a legal brief seeking to overturn a court decision that blocked the move on the grounds that it would harm competition in the airline industry.
“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,” Ted Christie, president of Spirit Airlines, said in a news release. “However, we remain confident in our future as a successful independent airline.”
JetBlue will pay Spirit $69 million related to the agreement’s termination. Spirit shareholders have already received $425 million in prepayments from JetBlue.
Whether Spirit can survive as a stand-alone airline has consequences for South Florida. It is the dominant carrier at Fort Lauderdale-Hollywood International Airport and also has a significant presence at Miami International Airport. It flies once a day from Palm Beach International Airport to Atlantic City International Airport. The Atlantic City flight is often sold out.
Both JetBlue and Spirit have already been cutting routes. According to court filings, Spirit has exited 70 routes in 2022, and 40 routes in the first half of 2023, representing more than 20% of its network. It also does not plan to enter the routes or cities it hoped to enter” as part of its May 2023 five-year network plan. Four of the eliminated routes were in Orlando and JetBlue has phased out more than a dozen routes across its network. More route cancelations are likely to come, according to analysts.
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Two years ago, Spirit sought to merge with Frontier Airlines, but JetBlue outbid Frontier with an unsolicited bid. Spirit fought the offer, concluding ironically that federal regulators would never approve a JetBlue-Spirit merger. Eventually, shareholders approved JetBlue's much higher offer.
But during the recent trial in federal court, U.S. Department of Justice attorneys used Spirit’s own words in their effort to block the merger.
At 1:50 p.m. Monday, March 4, Spirit shares plunged to $5.64, a decline of 13%. It was as high as $15 prior to the January court decision. JetBlue shares were selling for $6.57, up 2%. Had the merger gone through, JetBlue would have had to pay $33 a share for Spirit.
Under the terms of the merger, it had to occur by July 24, and with the appeals court hearing scheduled for May, it was unlikely a decision could have been rendered by the July deadline. JetBlue was expected to walk away from the deal if that happened or renegotiate the $33 offer.
What does the killed JetBlue merger mean for Spirit Airlines?
Spirit says it is prepared to stay in business, noting recently that it was working to refinance its debt, and that it sees a path back to profitability. It projected revenue for the first quarter above analysts’ expectations.
Spirit has not been profitable since 2019. Its annual losses ranged from $400 million to $500 million, and the company’s cumulative net loss since the onset of the COVID-19 pandemic is almost $2 billion. In the legal brief, the two airlines noted that the court failed to take into account Spirit’s precarious financial condition when it ruled against the merger.
Spirit is facing the grounding of dozens of its Airbus planes for inspections stemming from a Pratt & Whitney engine defect. It expects compensation from the engine-maker as a result of the flaw.
Nonetheless, Christie said in his news release that Spirit has always considered the possibility of continuing to operate as a standalone business and has been launching initiatives that will enable it to bolster profitability.
“The Company has been taking, and will continue to take, prudent steps to ensure the strength of its balance sheet and ongoing operations, including assessing options to refinance upcoming debt maturities,” Christie said.
Before the two airlines called off the merger, TD Cowen analyst Helane Becker wrote in an investor note that Spirit may look for another buyer. It could look to Frontier once again. According to court documents, it had previously discussed a merger with Allegiant Air and Sun Country Airlines.
Becker envisions a Chapter 11 bankruptcy as a likely scenario. She believes Spirit will have a difficult time restructuring its debt.
Henry H. Harteveldt, a travel industry analyst and president of Atmosphere Research Group, said Spirit must conduct an assessment of its route network to strengthen what is working and refine what isn’t working.
Spirit also has to assess its market position. with larger airlines such as United openly and aggressively using "Basic Economy" fares to compete with budget airlines, he said, noting: "Spirit needs to make itself an airline that travelers choose, rather than settling for. That means ensuring it is on-time, that it serves the right destinations with the right schedules, and that it has a loyalty program that people consider unique, compelling, and rewarding."
As for JetBlue, it "dodged a bullet," Harteveldt noted. It would have to have bought Spirit shares at $33, a six-fold premium over its price on Monday.
Mike Diamond is a journalist at The Palm Beach Post, part of the USA TODAY Florida Network. He covers Palm Beach County government and transportation. You can reach him at mdiamond@pbpost.com. Help support local journalism. Subscribe today.
This article originally appeared on Palm Beach Post: JetBlue, Spirit airlines call off merger deal. What about PBIA?
