Mar 6, 2023
JetBlue-Spirit Deal Faces DOJ Antitrust Suit as Soon as Tuesday
(Bloomberg) -- The US Justice Department and Department of Transportation are expected to take action as soon as Tuesday to block JetBlue Airways Corp.’s $3.8 billion takeover of Spirit Airlines Inc., according to people familiar with the case.
The Justice Department is expected to file an antitrust lawsuit in federal court, alleging that the elimination of Spirit would increase ticket prices and decrease options for travelers, according to the people, who spoke anonymously to discuss an ongoing case. The Department of Transportation is expected to begin a parallel proceeding to block the transfer of Spirit’s airline operating certificate as incompatible with the public interest, the people said.
The move by DOT is largely unprecedented in the modern era. The agency hasn’t used its authority to block the transfer of a certificate, or the formal federal approval to operate aircraft and carry passengers, among major airlines since the industry was deregulated in 1978.
The Justice Department’s suit is expected to focus on what it sees as potential harm to flyers, including fewer choices in booking flights and higher prices on all tickets for routes where there is no budget airline. Having an airline like deep-discounter Spirit as an option serves to keep prices lower for passengers, even those that fly with other carriers, the people said.
The timing of the complaint could slip to Wednesday, they said.
Spirit’s shares dropped 8.8% to $16.36 in New York, their steepest decline and lowest price since May 2022. JetBlue rose about 1%.
The Biden administration has taken a more aggressive approach to mergers and acquisitions with the Justice Department filing a record number of lawsuits last year. For example, last month, the Federal Communications Commission moved to block Standard General LP’s proposed $5.4 billion purchase of broadcaster Tegna Inc., sending the deal to a lengthy administrative hearing that could drag out the review, potentially beyond the companies’ time frame for completion. The FCC reviews radio and broadcast deals to ensure they are consistent with the public interest, a standard broader than the Justice Department’s review of deals.
President Biden’s July 2021 executive order on competition specifically called on DOT and Justice to consult on how to “ensure competition in air transportation and the ability of new entrants to gain access.”
The acquisition would make JetBlue the fifth-largest US carrier based on domestic traffic, large enough to influence pricing by much larger rivals in markets where they compete directly. The combined carrier hopes to lure passengers away from competitors with lower fares and better onboard service.
“We believe there is a high likelihood of a complaint from DOJ this week,” JetBlue said in an email. “We have always accounted for that in our timeline to close the transaction in the first half of 2024.”
The carrier said it would “vigorously pursue” a legal challenge to any deviation in how the DOT has treated takeovers and certificate transfer applications over the past 30 years.
Spirit didn’t respond to a request for comment. The Transportation Department declined to comment on any possible action involving approval of the takeover.
JetBlue’s all-cash takeover bid led Spirit in July to walk away from a pending agreement to be purchased by Frontier Group Holdings Inc. The deal is JetBlue’s best option for a quick infusion of pilots and aircraft, both of which are in short supply.
While the Department of Transportation hasn’t blocked a major airline combination in recent decades, Senator Elizabeth Warren, a Massachusetts Democrat, argued in a letter to Transportation Secretary Pete Buttigieg last September that the agency had the authority and should act to block it on the grounds that it isn’t in the public interest.
Based on previous cases, the agency could open investigations into two applications tied to the deal, using evidence it gathers to block either one. The Department of Transportation has typically withheld approval while the Justice Department is suing to block a combination.
The airlines met with the Justice Department last month in a final bid to avert a lawsuit by the antitrust agency, and JetBlue previously offered to give up Spirit assets in Boston and New York and at some airports in Florida in hopes of placating federal officials.
Separately, JetBlue agreed that the combined airline would add “hundreds” of new daily flights to Florida and create at least 1,000 jobs to help resolve concerns over the planned Spirit takeover, the Florida attorney general’s office said Monday as it announced the end of an antitrust review. JetBlue also agreed to maintain all Spirit and JetBlue facilities in the state, and to pay $1 million to cover costs of the investigation and future compliance with the agreement.
The proposed deal would eliminate Spirit as the largest deep fare discounter. That type of so-called ultra-low cost carriers offer rock-bottom fares in exchange for add-on fees for everything from a printed boarding pass to an in-flight cup of coffee or bottle of water.
JetBlue also released updated data Monday it said showed that the two carriers compete on a limited basis, that the Spirit assets it has offered to divest would further reduce any overlap and that rival deep discounters are growing rapidly.
The week’s lawsuit would mark the second against JetBlue by Biden’s antitrust lawyers, who are also seeking to unwind the airline’s alliance in the US Northeast with American Airlines Group Inc. A judge has yet to issue a decision in that case following a trial last year.
--With assistance from Alan Levin and Todd Shields.
(Updates with Florida agreement in 17th paragraph.)
©2023 Bloomberg L.P.