JetBlue, Spirit Appeal Ruling Blocking $3.8 Billion Merger (2)

JetBlue Airways Corp. and Spirit Airlines Inc. said they’re appealing a federal judge’s ruling blocking their planned $3.8 billion merger in a last-ditch effort to save a deal that many analysts believe is dead.

The carriers filed the one-sentence notice of appeal in court Friday that didn’t specify reasons for the move. Earlier, the airlines said US District Judge William G. Young erred in concluding Jan. 16 that the merger will lead to higher ticket prices or fewer choices for customers. Spirit had previously said the deal was still in effect as it explores ways to shore up its liquidity.

Spirit shares jumped as much 17% in after hour trading, while JetBlue fell as much as 2.2%.

JetBlue needs Spirit’s 200 aircraft and about 3,000 pilots at a time when both are in short supply across the industry. Without them, JetBlue has limited growth opportunities and will continue to be relegated to second-tier status behind the big four carriers. But Spirit’s financial situation and operations have declined since the deal was struck, reducing its value for a buyer. Analysts have speculated that a standalone Spirit may be forced into bankruptcy.

“It is clear to us that Spirit is pressing JetBlue to appeal the antitrust ruling, but we continue to believe the chances of success are low,” Savanthi Syth, a Raymond James analyst, said in a note Friday.

The pending combination the discount carriers was challenged by antitrust enforcers at the US Justice Department under the Biden Administration’s mandate to take a more aggressive stance on consolidation. The airlines argued during the trial that plans to divest Spirit gates and landing slots in the New York City area and in Boston, as well as some assets in Fort Lauderdale, Florida, were enough to allay concerns about the merged carrier dominating any markets.

Spirit’s Lifeline

While Young said his decision protected Spirit, Wall Street analysts have speculated the company could be forced into bankruptcy reorganization or even liquidation without the JetBlue lifeline. Both carriers are struggling as demand for domestic travel has slowed while labor and parts have gotten more expensive. Aircraft delivery delays and planes grounded by engine issues have also limited growth.

“We suspect JetBlue looks to appeal, but with very little effort to actually win,” Conor Cunningham, a Melius Research analyst, said Friday.

Before the appeal was announced, Spirit shares rose Friday after the carrier said the deal with JetBlue “remains in full force and effect” as it explores ways to shore up liquidity. The company also detailed efforts to refinance debt in a wide-ranging update aimed at easing anxieties over how Spirit will navigate the fallout of its troubled merger.

In a regulatory filing, Spirit said it “continues to believe that a combination with JetBlue is the best opportunity to increase much needed competition and choice.”

American Airlines Group Inc. is appealing a separate ruling by a different federal judge last year that killed its route-sharing partnership with JetBlue in the Boston and New York areas. That judge also found that the arrangement stymied competition, limiting choices for consumers and raising fares. JetBlue elected not to appeal in that case.

The case is US v. JetBlue, 23-cv-10511, US District Court, District of Massachusetts (Boston).

(Updates with Spirit comments on status of merger from ninth paragraph)

--With assistance from Yiqin Shen and Madlin Mekelburg.

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Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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Misyrlena Egkolfopoulou, Steve Stroth

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