Lucky Escape for JetBlue
JetBlue Airways can breathe a sigh of relief after a federal judge blocked the proposed $3.8 billion merger with Spirit Airlines. Although the decision may not have been in JetBlue’s favor, the low-cost carrier sees this outcome as a fortunate one, considering the impact it would have had on cost-conscious travelers who rely on Spirit’s affordable fares. The news of the court ruling caused JetBlue shares to soar by 4.9%, while Spirit’s stock tumbled by 47%.
A Narrow Dodge for JetBlue
Even prior to the verdict, Wall Street had doubts about the original deal, speculating that JetBlue would attempt to re-negotiate the price if it went through. The poor financial performance of Spirit Airlines over the past year, including projected losses for five consecutive quarters, made the merger appear increasingly unfavorable. The initial valuation of Spirit at $33.50 per share seemed far too high, especially when compared to the stock’s actual trading price of around $15 before the court ruling, which plummeted to $7.92 afterward.
Analysts Weigh In
TD Cowen analyst Helane Becker noted that the court’s decision is ultimately beneficial for JetBlue, given the negative trajectory of Spirit Airlines’ business since the merger announcement. In a similar vein, J.P. Morgan analyst Jamie Baker described JetBlue as having “dodged a bullet” with the ruling. He argued that the decision frees JetBlue from a potentially costly merger and suggested that the company’s stock, currently trading around $5, could rise significantly following the news. Baker also pointed out that JetBlue’s strong balance sheet provides the company with greater flexibility as it continues to focus on both international and premium markets.
The Future of JetBlue and Spirit Airlines
JetBlue and Spirit Airlines are facing divergent paths in the wake of recent events. While JetBlue appears to be weathering the storm, Spirit is experiencing a significant setback. Following a 47% plunge in the stock on Tuesday, Spirit’s shares plummeted an additional 8% on Wednesday.
This leaves Spirit in a challenging position. One potential scenario is that Frontier Group, a rival airline, or another buyer may step in to acquire the ultra-low-cost carrier through a bid. Notably, Frontier was engaged in a bidding war with JetBlue for Spirit back in 2022.
However, Becker, an industry expert, pointed out that Frontier’s plan to fund the initial merger with Spirit through its own shares could pose a problem. She explained that Frontier’s shares have already lost more than 60% of their value since that time.
Becker further stated, “We believe the most favorable outcome for Spirit would be to file for Chapter 11 bankruptcy followed by a liquidation.” As of now, Spirit has not responded to requests for comment.
Although both JetBlue and Spirit expressed their disagreement with the U.S. District Court’s ruling in a joint statement sent to _, there may be an appeal. However, according to Raymond James analyst Savanthi Syth, the likelihood of an appeal is low. She estimates that the appellate process would take approximately 4-5 months.
The broader airline sector also felt the impact of these developments, as Delta Air Lines saw a 1.3% drop, American Airlines experienced a 1.4% decline, and United Airlines saw a 1.4% decrease. Southwest Airlines also suffered a 1.6% fall.
Contrary to expectations, the court ruling has not put an end to the uncertainties surrounding the U.S. low-cost airline industry—it has amplified them.