Spirit Airlines rejects JetBlue offer

Spirit Airlines on Monday rejected an offer to acquire JetBlue Airways, saying regulators were unlikely to approve the proposal. In a l...

Spirit Airlines on Monday rejected an offer to acquire JetBlue Airways, saying regulators were unlikely to approve the proposal.

In a letter to JetBlue, Spirit executives said they have determined that JetBlue’s acquisition offer, which was updated on Friday, is unlikely to gain regulatory approval until the recently announced partnership by that airline with American Airlines would be in effect. The Justice Department and several states have filed a lawsuit to block the alliance, arguing it is anti-competitive, and JetBlue has said it will not abandon the partnership.

In a statement on Monday, Spirit board chairman Mac Gardner said the company is sticking to its proposed merger with Frontier Airlines, an agreement that predated JetBlue’s offer and which Spirit said reflected the best interests of long-term shareholders.

“After careful consideration and extensive dialogue with JetBlue, the Board of Directors has determined that JetBlue’s proposal involves an unacceptable level of closing risk that would be borne by Spirit shareholders,” Mr. Gardner said. “We believe our impending merger with Frontier will open an exciting new chapter for Spirit and provide many benefits for Spirit shareholders, team members and guests.”

Spirit and Frontier, two low-cost airlines, announced plans to merge in February. Then, JetBlue stepped in with a larger offer for Spirit, surprising many analysts and industry experts. Both deals would come under scrutiny from regulators in the Biden administration, who have expressed more skepticism of the consolidation than their predecessors.

Some analysts say Spirit and Frontier are better suited to merge because they operate under similar “very low cost” business models, but have more extensive flights in different parts of the United States. A JetBlue-Spirit combination might be more difficult to pull off as the airlines’ business models are quite different. But the deal could enable JetBlue to compete more effectively against the country’s four dominant airlines.

JetBlue’s updated offer added a handful of concessions to address Spirit’s concerns over regulatory approval, including an offer to divest certain assets of both airlines. JetBlue also said it would commit to divest Spirit’s assets in New York and Boston, markets at the heart of JetBlue’s partnership with American, known as the Northeast Alliance, in a bid to gain approval of the Ministry of Justice. JetBlue also said it would pay Spirit a $200 million fee if antitrust regulators block the deal.

Spirit management responded in a letter to JetBlue’s chief executive on Monday, saying it did not believe the updated bid had a reasonable chance of succeeding. Regulators, Spirit said, were likely to be “very concerned” about the prospect that JetBlue’s bid would result in higher costs, and therefore higher fares for consumers. Spirit said converting its planes, which are densely packed with seats, to JetBlue’s roomier configuration would result in higher prices, for example.

JetBlue responded that its offer and the agreement with Frontier shared “a similar regulatory profile”, but that Frontier had not offered to divest any assets or pay a break fee. JetBlue also said the value of Frontier’s cash and stock deal has faded as the airline’s stock price plummeted.

“Spirit shareholders would be better off with the certainty of our substantial cash bonus, regulatory commitments and break fee protection,” JetBlue Chief Executive Robin Hayes said in a statement Monday.

JetBlue also accused Spirit of failing to grant it sufficient access to data on the low-cost carrier’s operations while demanding “unprecedented commitments” from JetBlue.

For JetBlue, the American partnership and the Spirit offer are opportunities to accelerate a planned expansion. JetBlue, which has long maintained a large presence at New York’s Kennedy International Airport, has been constrained by gate availability at busy airports in the region. In their partnership, JetBlue and American have agreed to sell each other’s flights, link their frequent flyer programs and pool take-off and landing slots. It also allows JetBlue, which flies mainly in the United States, to sell more international tickets on American planes.

A trial in the Justice Department’s case against the alliance is scheduled for late September.

Representatives for American and Frontier declined to comment on Monday’s developments, but Stephen Johnson, a senior U.S. executive, said in a call with investor analysts and reporters last month that a JetBlue-Spirit deal would have no effect on the North Eastern Alliance.

“It’s not going to change the value we’re creating for consumers in New York and Boston at all,” he said.

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Newsrust - US Top News: Spirit Airlines rejects JetBlue offer
Spirit Airlines rejects JetBlue offer
Newsrust - US Top News
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