JetBlue and Spirit Airlines have announced that they will be appealing a judge’s decision that would prevent them from moving forward with their merger. The airlines have filed a notice of appeal, stating that it is consistent with the requirements of the merger agreement. This comes after the decision by Judge William Young of the federal District Court for Massachusetts was announced, causing Spirit’s share prices to fall over 50%.
During an antitrust trial in Boston last fall, JetBlue argued that it needed Spirit’s aircraft and crew members in order to expand its operations and compete with larger US carriers. On the other hand, Spirit claimed that it was struggling financially and could no longer effectively compete with its ultra-low-cost business model. The merger agreement would have allowed JetBlue to acquire Spirit and absorb its assets under its own brand and operation.
Since the merger deal was first struck last spring, Spirit’s valuation has significantly declined due to the challenges faced by the airline during the pandemic. JetBlue, however, is committed to buying Spirit at an inflated price of $3.8 billion, or $33.50 per share. Under the terms of the merger, JetBlue would also be responsible for a reverse breakup payment of $470 million to Spirit shareholders.
Analysts have viewed the injunction as a way for JetBlue to escape from what has become a disadvantageous deal. They believe that JetBlue was unprepared or unwilling to proceed with the originally-crafted deal economics, as the price was too high in hindsight. JP Morgan analyst Jamie Baker stated that the legal outcome frees JetBlue from further negotiations and that the expected appeal is unlikely to change the outcome.
There is also speculation among analysts about the possibility of Spirit declaring bankruptcy. Some believe that without a swift change in fundamentals, there is a real risk of bankruptcy for Spirit. However, it is noted that management may fight to turn the situation around. Analyst Helane Becker of TD Cowen suggested that the best-case scenario for Spirit would be a Chapter 11 filing followed by liquidation.
In conclusion, JetBlue and Spirit Airlines are appealing a judge’s decision that would block their merger. The decision has caused Spirit’s share prices to plummet, and analysts believe that JetBlue is seeking an escape from a deal that has become unfavorable. There are concerns about Spirit’s financial stability and the possibility of bankruptcy. The outcome of the appeal and the future of the two airlines remain uncertain.