JetBlue’s $3.8b Spirit deal is facing antitrust review

Bloomberg

JetBlue Airways Corp already overcame one adversary in its battle to acquire Spirit Airlines Inc. Now it faces an even bigger fight.
The $3.8 billion merger must undergo a rigorous antitrust review that analysts say could lead to significant divestitures or changes to the deal’s structure — if it gets approved at all. Concern over regulatory pushback was the main reason Spirit’s board resisted JetBlue’s overtures for several months in favour of a lower offer from Frontier group.
“This one is going to be put under the microscope,” Bill Baer, former assistant attorney general in charge of the Justice Department’s antitrust division, said of JetBlue’s deal. The notion that combining a low-cost airline with an ultra-low-cost carrier will enhance competition “will get a lot of scrutiny.”
After prevailing in the fiercest airline takeover clash in years, JetBlue is poised to gain new planes, routes and pilots, swelling its ranks at a speed it couldn’t otherwise achieve. While still ranking well behind behemoths like Delta Air Lines Inc and American Airlines Group Inc, a bulked-up JetBlue would leapfrog Alaska Airlines to become fifth-largest carrier in the US.
The DOJ is likely to examine a range of factors in JetBlue’s case, including the markets in which the carriers both operate, how any concentration of flights would affect air fares, whether service would be cut and if the combination would reduce chances that the surviving carrier will expand into new cities or regions.
Merger reviews are customary, but President Joe Biden has made intense scrutiny a priority in industries with heavy consolidation, including airlines. A number of high-profile recent deals have been stymied by antitrust reviews, including Nvidia Corp’s failed attempt to purchase Arm Ltd and Lockheed Martin Corp’s proposed — then abandoned — merger with Aerojet Rocketdyne Holdings Inc.
Asset divestitures can help smooth the way to antitrust approval, and JetBlue has already offered to give up Spirit’s assets in the New York and Boston areas, and potentially in crowded airports in some Florida cities. Robin Hayes, JetBlue’s chief executive officer, said this shows how committed they are to doing what is necessary.
“We have a path to close this deal,” he said in an interview. The carriers expect approval no later than mid-2024.
Investors and experts aren’t so sure. An informal survey of merger arbitrage specialists by Bloomberg found most see a 50% or lower probability of the deal being completed.
JetBlue is already facing a DOJ suit to block an existing partnership in the Northeast US with American Airlines. Concerns over the so-called Northeast Alliance — and whether JetBlue would be willing to abandon it to close the Spirit deal — led JetBlue to include an unusual $470 million breakup fee for Spirit and its shareholders if the merger is blocked on antitrust grounds.
“When JetBlue made the takeover bid for Spirit, they already knew that the NEA was something that would have to go,” said Florian Ederer, who teaches a class on antitrust and competition policy at the Yale School of Management and has authored papers on the topic. A requirement to ditch the American partnership likely will not lead JetBlue to walk away from the merger, he said.