JetBlue and Spirit Airlines end merger agreement after regulatory pushback

By Ciara Linnane and Claudia Assis

Spirit's stock heads to record low

JetBlue Airways Corp. and Spirit Airlines Inc. said Monday they have reached an agreement to terminate their July 2022 merger deal, sending Spirit's stock down 14%.

"Although both companies continue to believe in the procompetitive benefits of the combination, JetBlue (JBLU) and Spirit (SAVE) mutually agreed that terminating is the best path forward for both companies as required closing conditions, including receiving necessary legal and regulatory approvals, were unlikely to be met by the merger agreement's outside date of July 24, 2024," JetBlue said in a statement.

The decision is a negative for Spirit and "marginally positive" for JetBlue, Citi analyst Stephen Trent said in a note Monday.

"With a merger now off the table, Spirit Airlines seems more likely to focus on liquidity issues, while the market watches for any signs regarding JetBlue's plans to restore profitability and free cash flow," he said.

Spirit in January sought to reassure investors with an upbeat revenue outlook and liquidity amid concerns that a failed merger with JetBlue could result in a bankruptcy.

Trent said that it would be "unlikely that another airline would entertain acquiring Spirit prior to the latter carrier at least having some sort of debt-restructuring plan in place."

The deal was put in peril in January when a court sided with the Justice Department in saying that a merger between low-cost JetBlue and ultra-low-cost Spirit would hurt competition. The companies had appealed the ruling.

See also: JetBlue still evaluating options of Spirit merger, stock drops after earnings

JetBlue will now pay Spirit a $69 million breakup fee to release all claims between the two companies.

JetBlue will concentrate on its efforts to return to profitability, refocusing on core strengths while cutting costs. The airline is on track to deliver $175 million to $200 million in cost savings from its structural-cost program and $75 million in maintenance savings from its fleet modernization, as well as incremental savings from other fixed-cost base reductions. Those are expected to put it on track to approach break-even operating margins in 2024.

JetBlue is planning to host an investor day on May 30.

For its part, Spirit said it had always considered the possibility it might have to go it alone and that it has been evaluating its next steps. Spirit's stock headed to a record low, based on data going back to May 2011, and was on pace for its largest one-day percent decrease since Jan. 26, when it tumbled 13%.

"The company has been taking, and will continue to take, prudent steps to ensure the strength of its balance sheet and ongoing operations, including assessing options to refinance upcoming debt maturities," Spirit said in a separate statement.

The Justice Department called the airlines' decision to end their merger "yet another victory for the Justice Department's work on behalf of American consumers," adding that a combination of the two airlines "would have caused tens of millions of travelers to face higher fares and fewer choices."

Spirit's stock is down 64% in the last 12 months, while the S&P 500 SPX has gained 27%. JetBlue shares are down 21% in the past 12 months. The U.S. Global JETS exchange-traded fund JETS is flat in the same time frame.

-Ciara Linnane -Claudia Assis

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-04-24 1231ET

Copyright (c) 2024 Dow Jones & Company, Inc.