On Jan. 16, a federal judge dealt a significant blow to the potential JetBlue-Spirit Airlines merger on supporting the Biden administration and preventing the $3.8 billion deal from moving forward. Almost immediately after the rule, Spirit shares dropped significantly. Spirit Airlines plummeted about 22 percent, CNBC reported. Some observers say Spirit may be on the verge of bankruptcy. Is President Joe Biden pushing the carrier in that direction?
U.S. District Judge William Young, in a court filing said the acquisition would “substantially lessen competition” in violation of the Clayton Act, which “was designed to prevent anticompetitive harms for consumers,” AP News reported.
Biden lauded the decision to block the deal, emphasizing that “capitalism without competition isn’t capitalism – it’s exploitation.” The White House sees the move as a victory for consumers, aiming to ensure lower prices and greater choices in the airline industry. The decision aligns with Biden’s broader economic plan to promote competition and combat inflation.
“Capitalism without competition isn’t capitalism – it’s exploitation,” Biden said in a statement, The Hill reported. “Today’s ruling is a victory for consumers everywhere who want lower prices and more choices. My Administration will continue to fight to protect consumers and enforce our antitrust laws.”
JetBlue had put forward a $3.8 billion proposal to acquire Spirit Airlines, a move that would have positioned the merged entity as the fifth-largest airline in the U.S. However, U.S. District Judge William Young ruled that the merger would “substantially lessen competition,” violating the Clayton Act designed to prevent anticompetitive practices.
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For Spirit Airlines, the blocked merger represents a significant setback. Struggling financially, Spirit has not turned a profit since before the pandemic, and the proposed acquisition by JetBlue was seen as a potential lifeline. With $1.1 billion in debt maturing next year, the airline now faces an uncertain future.
Industry analyst Helane Becker from TD Cowen sees the end of the merger as a significant blow for both companies. While JetBlue may consider organic growth, Spirit Airlines is perceived to have bigger issues, including cash flow problems. Analysts are questioning Spirit’s ability to survive independently, with bankruptcy looming as a real possibility.
“It’s the end of this merger, for the time being, we expect that JetBlue will consider leasing in aircraft, or placing an aircraft order for aircraft, so it can grow organically, although it will take years what Spirit could have done for them,” Becker told CNBC. “For Spirit, however, we think they’ve got bigger issues. If you look at their income statement, look at their balance sheet, they just raised $418 million in cash by doing tallies transactions on their aircraft, and they have had a lot of unencumbered assets they were able to mortgage, but when airlines have cash flow problems, that kind of argues when you raise a lot of capital for going into chapter 11 sooner rather than later if you’re going to provide your own debtor-in-possession financing, which is what we think Spirit will do.”
JetBlue, Photo by Malcolm Garret: https://www.pexels.com/photo/white-and-blue-airplane-9663804/Spirit Airlines, Photo by Nick Flanagan: https://www.pexels.com/photo/yellow-airplane-flying-12835561/President Joe Biden takes off his sunglasses as he speaks at the White House, July 4, 2023. (AP Photo/Susan Walsh)