JetBlue and Spirit, whose merger was blocked last week by a Federal judge’s order, say they will appeal the decision, an action required under the agreement between the two airlines—but it is possible that JetBlue’s heart is not in the appeal.
Both airlines have been facing financial headwinds, with Spirit not showing a profit since before the pandemic, and JetBlue having some recent dips despite its continuing expansion. But the continuing decline of Spirit’s share price, including a big drop after the court ruling, may be making the $3.8 billion merger price JetBlue agreed to look a lot like overpaying. By comparison, the $470 million JetBlue would have to pay as a break-up fee might be a bargain.
In the court hearings, the two airlines argued that the merger was necessary because JetBlue needs to grow quickly to compete with the four U.S. legacy airlines that hold over 80% of the business and because Spirit could not long survive on its own as a standalone ultra-low-cost carrier.
JetBlue, in a move that it says was planned before the court order, has dropped a number of routes and will drop service altogether to Baltimore. JetBlue says that the cuts “are a necessary quick step to help return our business to profitability. All the routes included have recently underperformed our expectations and these changes come as post-COVID travel patterns continue to evolve.”
Wall Street analysts have suggested that Spirit’s condition might be even more dire, and that if the appeal fails, as it is likely to, the airline might fold completely fairly soon.
UPDATE: January 26
JetBlue, in a filing with the U.S. Securities and Exchange Commission today, made it clear that its merger agreement with Spirit Airlines may, in fact, come apart in the wake of the court decision and a sharp drop in the value of Spirit’s stock.
In the filing, JetBlue said that some of the conditions of the deal had not been met within the agreement’s deadlines, a situation that could allow termination of the deal despite the announced intention by both airlines to appeal. In a separate filing, Spirit said that it disagrees and that there is “no basis” for killing the deal.
JetBlue’s motive in letting the deal die lies in the price set in the original deal; the $3.8 billion price valued Spirit’s stock at $33.50 a share, a bit over the then market price. In the meantime, Spirit’s stock has dropped to about $6.35 a share, meaning that at the original deal price JetBlue would be paying over five times the market value. That, and the uncertainty of the appeal, makes the $470 million break-up price look attractive.