Christine Boynton January 19, 2024
Credit: Joe Pries
JetBlue Airways and Spirit Airlines will appeal the ruling blocking their merger handed down on Jan. 16.
Their intent was announced late in the afternoon on Jan. 19. JetBlue and Spirit said the notice of appeal, filed jointly, was “consistent with the requirements of the merger agreement.” It followed an earlier investor update from Spirit, in which the ULCC expressed continued confidence in the deal and outlined steps to return its business to profitability.
The defendant airlines had 30 days to appeal the ruling that blocks their deal as currently proposed. U.S. District Judge William G. Young found the acquisition to be in violation of Section 7 of the Clayton Act, believing it would “substantially” lessen competition at a time when other airlines – contending with growth-limiting post-pandemic constraints – would not sufficiently replace Spirit’s presence. His decision left the door open for the two airlines “to take another run at a merger at any time.”
Analysis from TD Cowen notes that an appeal will buy Spirit more time to turn its losses around.
During the antitrust trial that ended Dec. 5, 2023, Spirit stressed its financial position, with its counsel describing an inability to achieve previously planned growth on its own. Spirit CEO Ted Christie told the judge he had no estimate as to when the carrier would return to profitability, remarks which followed eight consecutive loss-making quarters.
But in its filing on Jan. 19, the ULCC described recent steps taken to shore up liquidity as enabling “strategic shifts” necessary to compete more effectively and return the business to a profit-earning position. Among those steps are its sale-and-leaseback transaction announced in early January, covering 25 aircraft and netting cash proceeds of approximately $419 million while allowing for repayment of roughly $465 million of aircraft debt.
It is also assessing options to refinance $1.1 billion in debt coming due in 2025 and continues negotiating Pratt & Whitney compensation for the geared turbofan (GTF) neo engine availability issues, which it anticipates will be “a significant source of liquidity over the next couple of years.”
In Jan. 19 pre-market trading, Spirit shares that had fallen more than 60% following the antitrust ruling lifted more than 20% from the prior day’s close as the carrier filed its comments on profitability and improved its fourth quarter (Q4) guidance. On the heels of strong bookings over the winter holidays and lower-than-expected operating expenses, Spirit now expects total Q4 revenue to be at the high end of its initial guidance, $1.32 billion, raising its quarterly operating margin guidance from negative 15-19% to negative 12-13%. It had $1.3 billion of liquidity as of Dec. 31, 2023, and projects year-over-year capacity growth of 1-2% in Q1 2024 – below its previous guidance of 7%.
The merger agreement between Spirit and JetBlue “remains in full force and effect,” Spirit wrote in its Jan. 19 investor update before the decision to appeal was announced, reiterating that it “disagrees with the U.S. District Court’s ruling and continues to believe that a combination with JetBlue is the best opportunity to increase much needed competition and choice by bringing low fares and great service.”
Christine Boynton is a Senior Editor covering air transport in the Americas for Aviation Week Network.