Judge blocks JetBlue’s $3.8-billion buyout of Spirit Airlines, cites competition threat
A federal judge is siding with the Biden administration and blocking JetBlue Airways from buying Spirit Airlines, saying the $3.8-billion deal would reduce competition.
The Justice Department sued to block the merger, saying it would drive up fares by eliminating Spirit, the nation’s largest low-cost airline.
U.S. District Judge William Young, who presided over a non-jury trial last year, said in the ruling Tuesday that the government had proved “that the merger would substantially lessen competition” and violate a century-old antitrust law.
In his ruling, which ran more than 100 pages, the judge gave a nod to the Justice Department’s argument that Spirit is particularly important to travelers looking for an alternative to pricier airlines.
“Spirit is a small airline. But there are those who love it. To those dedicated customers of Spirit, this one’s for you,” Young wrote.
Shares of Spirit Airlines plunged 47% after the ruling, while JetBlue shares gained 5%.
Justice Department says the merger would hurt travelers who depend on Spirit to find cheaper options than they can find on JetBlue and other airlines.
JetBlue and Spirit said they disagreed with the ruling and were considering whether to appeal.
New York-based JetBlue had argued that it needs the deal to compete better against bigger rivals that dominate the U.S. air travel market.
“We continue to believe that our combination is the best opportunity to increase much needed competition and choice by bringing low fares and great service to more customers in more markets,” the airline said in a statement.
The ruling was a win for the Biden administration, which has moved aggressively to block consolidation in several industries.
“Today’s ruling is a victory for tens of millions of travelers who would have faced higher fares and fewer choices” if the deal had gone through, Atty. Gen. Merrick Garland said.
It may be no surprise that the U.S.
For JetBlue, the ruling was the second major setback in federal court in less than a year. Another judge in the same Boston courthouse killed a partnership in the Northeast between JetBlue and American Airlines.
JetBlue, the nation’s sixth-largest airline by revenue, now must come up with another growth plan. That will be an assignment for Joanna Geraghty, who will replace Chief Executive Robin Hayes next month. Hayes had engineered both of the deals that have now been blocked in court.
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, only to have JetBlue make an all-cash offer and win a bidding war for Florida-based Spirit.
Spirit’s CEO and board initially opposed a sale to JetBlue, arguing presciently that regulators would try to block a deal that would eliminate a low-cost carrier from the U.S. landscape — JetBlue planned to repaint Spirit’s planes and remove some seats to match JetBlue’s roomier interior.
To overcome that resistance, JetBlue agreed to pay Spirit a reverse breakup fee of $70 million and pay Spirit shareholders $400 million if the deal failed because of government opposition.
A trial is underway in the federal government’s lawsuit aiming to kill a partnership between American Airlines and JetBlue Airways in the Northeast
Both JetBlue and Spirit have struggled to recover from the pandemic while their bigger rivals have returned to healthy profitability. JetBlue has lost more than $2 billion since the start of 2020, and Spirit has lost more than $1.6 billion in that time.
That generated some sympathy for a merger between them — and criticism of the judge’s ruling.
“Blocking a merger of smaller competitors trying to combine resources and scale up to compete with the top four airlines makes little sense,” said Jessica Melugin, an antitrust expert at the Competitive Enterprise Institute, which opposes government intervention in the market. “It risks making both Spirit and JetBlue less able to compete with the big guys and ultimately leaving the airline industry less competitive, harming consumers.”
But the decision was praised by critics of mergers over the last 15 years that have eliminated Continental, Northwest, US Airways, AirTran and Virgin America.
“This is an enormous victory for travelers, workers and local communities, and another huge win for antitrust enforcers” at the Justice Department, said William McGee, an air travel expert at the American Economic Liberties Project.
Alaska Airlines agrees to buy Hawaiian Airlines in a $1.9-billion deal that could lead to a clash with a Biden administration wary of higher airfares.
The government’s victory could make it more likely that it will challenge Alaska Airlines’ proposal to buy Hawaiian Airlines for $1 billion and pick up about $900 million in Hawaiian’s debt.
“The days of relentless consolidation are over. We hope to see judges presiding over future airline mergers, like Alaska-Hawaiian, follow Judge Young’s lead,” McGee said.
The government hasn’t said whether it will sue to stop Alaska from buying Hawaiian. The attorney general might have tipped his hand, however. “The Justice Department will continue to vigorously enforce the nation’s antitrust laws to protect American consumers,” Garland said.
