Federal judge blocks proposed JetBlue takeover of South Florida-based Spirit Airlines

A federal judge in Boston on Tuesday blocked the $3.8 billion takeover of Spirit Airlines by JetBlue Airways, a ruling that will keep the Miramar-based discount carrier independent for now.

U.S. District Judge William G. Young spent more than a month at the end of last year hearing dueling testimony from top company executives and a variety of experts who opined on the impact JetBlue’s acquisition would have on consumers.

In the end, he concluded that the transaction “would substantially lessen competition in a relevant market.”

Upon hearing the news, investors moved to sell Spirit stock, with its shares plunging more than 53%.

“A post-merger, combined firm of JetBlue and Spirit would likely place stronger competitive pressure on the larger airlines in the country,” the judge acknowledged in a 113-page ruling. “At the same time, however, the consumers that rely on Spirit’s unique, low-price model would likely be harmed.”

Young went on to note that both airlines “compete head-to-head throughout the country, and that competition, particularly Spirit’s downward pressure on prices, benefits all consumers.”

Although lawyers for New York-based JetBlue had argued that other low-cost carriers that recently entered the market would eventually fill the void left by Spirit, which would disappear as a result of the takeover, “Spirit’s unique position in the domestic scheduled passenger airline industry would be exceedingly difficult for another airline, or a combination of other airlines, to replicate, even with low barriers to entry …”

Young observed the federal Clayton Act “was designed to prevent anti-competitive harms for consumers by preventing mergers or acquisitions the effect of which ‘may be substantially to lessen competition, or tend to create a monopoly.’”

No suitable replacements

“Summing it up,” the judge wrote, “if JetBlue were permitted to gobble up Spirit — at least as proposed — it would eliminate one of the airline industry’s few primary competitors that provides unique innovation and price discipline. It would further consolidate an oligopoly by immediately doubling JetBlue’s stakeholder size in the industry.”

“Worse yet, the merger would likely incentivize JetBlue further to abandon its roots as a maverick, low-cost carrier,” he added.

While it is understandable that JetBlue seeks inorganic growth through acquisition of aircraft that would eliminate one of its primary competitors, the proposed acquisition, in this Court’s attempt to predict the future in murky times, does violence to the core principle of antitrust law: to protect the United States’ markets — and its market participants — from anticompetitive harm.

Neither airline immediately issued any statements Tuesday.

U.S. feared higher fares for consumers

The government sued in March of last year to stop the buyout, saying it would cost consumers up to $1 billion a year in more expensive fares while depriving them of a a major choice in airline, Spirit, which is based in Miramar and ranks as the busiest carrier at Fort Lauderdale-Hollywood International Airport, is the largest ultra-low-cost carrier in the nation.

If Young approved the buyout, Spirit indeed would have vanished, with JetBlue integrating Spirit’s estimated 10,000 employees into its work force and repainting its more than 450 yellow planes into JetBlue colors. JetBlue would also revamp the Spirit jetliners’ interiors to comport with JetBlue’s seating arrangements.

JetBlue has said that if the court approves the acquisition, the deal could be closed in the first half of this year.

For the Greater Fort Lauderdale area, the disappearance of Spirit would likely leave JetBlue as the airport’s biggest carrier, particularly now that JetBlue has agreed to partner with the airport to build a fifth terminal by 2027.

But the Biden administration’s Justice Department has been aggressive in curbing merger activity in the airline industry. Before Young reached his decision, the government won a case in the same Boston court to dismantle a marketing partnership between JetBlue and American Airlines known as the Northeast Alliance. The government alleged the arrangement was anti-competitive and the court agreed.

In the wake of that defeat, JetBlue scrambled to salvage the Spirit deal by entering into deals with other airlines to sell Spirit operational assets in Boston. Greater New York and in Fort Lauderdale.

Under one deal, JetBlue agreed to sell Allegiant Airlines  two gates operated by Spirit at Boston’s Logan International Airport and two gates and takeoff and landing rights at Newark Liberty International Airport. JetBlue said it would also offload up to five gates at Fort Lauderdale-Hollywood International.

Those transactions were contingent on the takeover being approved, according to statements by the airlines.

But it remained to be seen whether those transactions would be enough to persuade the judge that present-day competition in the Northeast and South Florida would be preserved if he approved the JetBlue-Spirit buyout.

Turmoil ahead

The decision to reject the buyout leaves both airlines facing a number of challenges alone: They include overcapacity in the U.S. domestic market, discounting by American, Delta, Southwest and United, the very airlines that JetBlue and Spirit hoped to oppose; and continuing financial losses.

On Jan. 3, Spirit announced it had moved to pay down debt and raise cash through “a series of sale-leaseback transactions with respect to 25 aircraft, resulting in repayment of approximately $465 million of indebtedness on those aircraft and net cash proceeds to the company of approximately $419 million.”

The move came after management reported a third quarter net loss of $157 million and top executives told analysts of headwinds posed by unfavorable industry capacity.

For the duration of this year, Spirit and JetBlue also face logistical issues with Pratt & Whitney engines that power Airbus jetliners in their fleets. Engine inspections will require both carriers to temporarily remove planes from service, a requirement that will affect scheduling and capacity, according to statements by both managements.

On the JetBlue side, CEO Ron Hayes, the architect and prime driver of the Spirit buyout, surprisingly announced Jan. 9 that he is retiring for health reasons effective Feb. 12. He is being replaced by Joanne Geraghty, the company’s president and chief operating officer.

How a proposed deal became an odyssey

Feb. 7, 2022: Frontier Airlines of Denver offers to buy Miramar-based Spirit in a stock and cash offer that reaches $2.65 billion. The two ultra-low-cost carriers assert consumers would enjoy $1 billion in annual savings.

April 5: 2022  JetBlue Airways, a discount carrier based in New York,  launches a bidding war with an all-cash offer that reaches $3.8 billion.

July 27, 2022  Frontier and Spirit abandon plan after JetBlue increases its bid for Spirit multiple times.

Oct. 19, 2022: Spirit shareholders approve JetBlue offer. In a reference to American, Delta, Southwest and United, JetBlue calls the vote “a major milestone in our plan to join with Spirit to create a high-quality, low-fare national challenger to the Big Four airlines.”

March 6, 2023: JetBlue and Spirit enter into a settlement agreement with Florida Attorney General Ashley Moody, which calls for the combined airline to make major service commitments in the state as a price for staying out of the antitrust suit.

March 7, 2023: U.S. Justice Department, joined by several states and the District of Columbia, sues to block the deal, saying consumers would lose a discount option and end up paying higher fares where Spirit flies.

Sept. 11, 2023: JetBlue says it agreed  to turn over Spirit’s operations at Boston and Newark, New Jersey to Allegiant Airlines. JetBlue previously said it would sell Spirit’s operation at New York’s LaGuardia Airport to Frontier if the JetBlue-Spirit deal is approved.

Oct. 31, 2023: Antitrust trial starts before U.S. District Judge William Young in Boston.

Jan. 9, 2024: JetBlue CEO Robin Hayes announces resignation for health reasons, effective Feb. 12.

Jan. 16, 2024: Judge Young issues opinion blocking takeover.