JetBlue Airways and Spirit Airlines filed an appeal late Friday of the federal court ruling from earlier this week that had blocked their proposed merger on antitrust grounds.
The two-page appeal filed after the market close on Friday did not lay out any legal argument for the appeal. It simply notified the court that the two airlines would be going forward with their efforts to combine and form the nation’s new fifth largest airline.
The airlines had previously signaled they disagreed with the decision.
“We continue to believe that our combination is the best opportunity to increase much needed competition and choice by bringing low fares and great service to more customers in more markets while enhancing our ability to compete with the dominant U.S. carriers,” said the two airlines on Tuesday following the decision.
Shares of Spirit, which have lost most than half their value since the original court decision blocking the deal on Monday, jumped 12% in after-hours trading on news of the appeal. Meanwhile JetBlue shares fell 2%.
Spirit shares had already closed up 17% in regular-hours trading Friday after Spirit had tried to assure investors that the decision blocking its purchase by JetBlue would not force it out of business.
The discount airline said in the early Friday filing that it expects to beat analysts’ expectations for the end of the year. But that doesn’t mean a profit — it just means the company believes it will lose less money than predicted in the fourth quarter, which would still leave it in a worse position than the fourth quarter of 2022. The company also wants to refinance $1.1 billion in debt due in September 2025.
Shares of Spirit fell 47% in trading Tuesday after the court blocked the acquisition by JetBlue and another 22% on Wednesday. A note by Cowen airline analyst Helane Becker late Wednesday speculated that Spirit could be forced to liquidate because aircraft leasing companies, which own more than half of Spirit’s 200-plus Airbus jets, would be more likely to repossess the planes and find other customers rather than to negotiate new financing terms.
Other analysts didn’t predict bankruptcy or liquidation, but still forecast a difficult course for Spirit trying to make it on its own. JPMorgan Chase’s airline analysts wrote in a note that while “we are not (yet) predicting an immediate” bankruptcy filing by Spirit, “we can not reasonably identify a viable return to profitability any time soon.”
But the JPMorgan analysts had also suggested that while JetBlue was still interested in expanding through acquiring Spirit’s aircraft and pilots, it might want to walk away from the $3.8 billion deal as originally crafted. It also cast doubt on the success of the appeal.
“We believe JetBlue was wholly unprepared (or unwilling) to proceed with the originally-crafted deal economics (the price was simply just too much to pay),” the JPMorgan analysts wrote on Tuesday. They said JetBlue may still get out of the deal “as we have no reason to believe its expected (contractual) appeal will alter the outcome.”
In its guidance Friday, Spirit Airlines said its revenue should come in at $1.32 billlion, a bit better than the forecast of $1.31 billion. It put its operating losses between $158 million to $172 million, down from the $178 million operating loss in the third quarter, and better than forecasts of a $197 million loss.
But the quarter will still be worse than the fourth quarter of a year ago when it had revenue of $13.9 billion and an adjusted operating profit of $58 million.
All US airlines were hemorrhaging billions during the first two years of the pandemic, despite receiving billions of dollars of federal assistance to keep flying and prevent widespread layoffs. But as demand for air travel bounced back in 2022, so did profitability at the larger carriers.
But smaller carriers — like Spirit — that offer lower fares to attract bargain-hunting leisure travelers have continued to struggle. Following $1 billion in losses in 2020 and 2021, the company lost $264 million in the first nine months of 2023. It is forecast to lose another $175 million for the final three months of 2023, and an additional $310 million in losses this year, according to analysts surveyed by Refinitiv.
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January 20, 2024 at 02:30AM
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JetBlue and Spirit appeal court decision blocking their merger - CNN
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