(Bloomberg) -- JetBlue Airways Corp. warned that its planned $3.8 billion acquisition of Spirit Airlines Inc. may be terminated in the coming days, setting up a possible clash between the carriers over the ailing deal.
JetBlue notified Spirit that terms “may not be satisfied” by the dates in the merger agreement, allowing the deal to be scrapped on or after Jan. 28, according to a regulatory filing Friday. JetBlue didn't specify what terms it was referring to and said it continues to evaluate options.
Spirit pushed back in a separate filing, saying it “believes there is no basis” for terminating the deal. “Spirit will continue to abide by all of its obligations under the merger agreement, and it expects JetBlue to do the same.”
The warring words mark a shift for the companies, which had been planning since 2022 to combine operations in a bid to bulk up and challenge the industry's biggest airlines. As recently as last week, JetBlue and Spirit said they would appeal a federal judge's Jan. 16 ruling blocking the tie-up over antitrust concerns.
The latest news sent Spirit's shares down 16% as of 11:28 a.m. Friday in New York. The stock had already lost more than half its value since the judge's ruling amid speculation by some analysts that the carrier could be forced into bankruptcy without the deal. Shares of JetBlue traded up 1.8%.
“This smells like an effort to abandon the deal and avoid having to overpay,” said Bill Baer, former head of the US Justice Department antitrust division. “JetBlue filed the obligatory notice of appeal, but at the same time is looking for a back-door escape hatch.”
Spirit's value has declined considerably since the deal was first announced, as the low-cost carrier has contended with delayed aircraft deliveries, planes grounded by engine issues and lagging domestic fares. That has raised questions about whether JetBlue would remain committed to the deal on the original terms.
Under the agreement, JetBlue is required to pay Spirit $70 million if the deal is blocked for antitrust reasons, and $400 million to Spirit shareholders. Much of the shareholder payments have already been accounted for through periodic payouts and a special dividend. The acquisition agreement has a “drop-dead” date of July 28, unless both sides agree to an extension.
“This is clearly JetBlue triggering its first available date on which it can walk away if all conditions aren't met,” said Jennifer Rie, a Bloomberg Intelligence litigation analyst. It's not clear when JetBlue might walk away from the deal, but Spirit could try to salvage the agreement by arguing conditions have been satisfied, she said.
Spirit may even wind up owing JetBlue money if the deal falls apart. Termination under certain circumstances could require the carrier to pay JetBlue a $94.2 million breakup fee, according to the agreement. If the deal is ended because of a “material” breach of the agreement by Spirit, it would have to pay JetBlue back the amount already sent to Spirit stockholders under “ticking fees” and a special dividend.
JetBlue executives pursued Spirit because they believe becoming bigger is the only way the company can influence pricing among the four largest US carriers that dominate the market. As a standalone carrier, JetBlue holds a niche market that will be tough to notably expand. JetBlue needs Spirit's 200 aircraft and about 3,000 pilots at a time when both are in short supply across the industry.
The federal court ruling against the JetBlue-Spirit combination isn't the first strike JetBlue has suffered under the Biden Administration's aggressive stance on consolidation. A federal judge last year killed JetBlue's route-sharing partnership with American Airlines Group Inc. in the Boston and New York areas. That judge similarly found that the alliance stymied competition, limiting choices for consumers and raising fares. American is appealing the ruling.
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