JetBlue and Spirit Airlines have announced that they will appeal a judge’s decision that would prevent their merger from taking place. The airlines have filed a notice of appeal in accordance with the requirements of the merger agreement. This move comes after Judge William Young of the federal District Court for Massachusetts blocked the merger, causing share prices for Spirit to plummet.
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 U.S. carriers. Spirit, on the other hand, claimed that it was in a vulnerable financial position and could no longer effectively compete with its ultra-low-cost business model. Under the terms of the merger, JetBlue would acquire Spirit and incorporate its assets into its own brand and operation.
Since the merger deal was initially announced last spring, Spirit’s valuation has dropped significantly as the airline struggled to recover from the impact of the pandemic and generate profits. This has put JetBlue in a challenging position, as it is committed to purchasing Spirit at an inflated price of $3.8 billion, or $33.50 per share. However, the merger agreement also stipulates that JetBlue would be liable for a reverse breakup payment of $470 million to Spirit shareholders.
Despite the financial implications, analysts believe that the injunction blocking the merger may be the best outcome for JetBlue. The airline would have had to take on significant debt from Spirit, making the deal less favorable. JP Morgan analyst Jamie Baker stated that JetBlue was unprepared or unwilling to proceed with the original deal economics, suggesting that the price was too high in hindsight.
Analysts have also raised concerns about Spirit’s financial stability, with some predicting the possibility of bankruptcy. Connor Cunningham of Melius Research noted that there is real bankruptcy risk for Spirit without a swift change in its fundamentals. However, it is expected that Spirit’s management will fight to turn things around.
Some analysts have even suggested that Spirit may not survive and could potentially face liquidation. Helane Becker of TD Cowen believes that the best-case scenario for Spirit would be a Chapter 11 filing followed by a Chapter 7 liquidation.
In conclusion, JetBlue and Spirit Airlines are appealing a judge’s decision that would prevent their merger from proceeding. The injunction blocking the merger has caused share prices for Spirit to plummet, raising concerns about the airline’s financial stability. While the appeal may not change the outcome, it provides JetBlue with an opportunity to reassess the deal and potentially avoid taking on significant debt.