Shares of Spirit Airlines fell another 22% on Wednesday following a federal judge’s move to block its planned $3.8 billion acquisition by JetBlue.
The deal would have created the fifth-largest airline in the US. Instead, Spirit stock lost roughly half its value Tuesday and is still dropping a day later.
The DOJ suit claimed that JetBlue’s planned acquisition would eliminate “about half of all ultra-low-cost airline seats in the industry.”
“JetBlue plans to convert Spirit’s planes to the JetBlue layout and charge JetBlue’s higher average fares to its customers,” US District Court Judge William Young wrote in his decision. “The elimination of Spirit would harm cost-conscious travelers who rely on Spirit’s low fares.”
The ruling is a win for the US Justice Department, which sued to block the merger on the grounds that it would increase fares by reducing competition in the discount airline market.
“Today’s ruling is a victory for tens of millions of travelers who would have faced higher fares and fewer choices had the proposed merger between JetBlue and Spirit been allowed to move forward,” Attorney General Merrick Garland said in a statement.
Spirit will face “tough” domestic fundamentals throughout 2024 on domestic supply and further cost pressures, analysts at Bank of America noted.
“We believe (Spirit) has a difficult path ahead to return to its historical level of growth and profitability, which could create risk for the $1.1 billion in debt due in September 2025,” analysts noted.
BofA downgraded Spirit Airlines (SAVE) to Underperform from No Rating, noting that the airline’s current enterprise value exceeds consensus revenues.
Analysts noted that an appeal of the ruling could be an upside risk, but the inability to refinance or address 2025 maturities poses a key downside risk.
Spirit shares closed at $6.14.