But if they aren’t certain of their case against the Northeast Alliance it’s a play where they get a big scalp. They might not be ok with the Northeast Alliance or with this merger and they might think they can stop both. Of course the Biden administration might not do that. They seem to prefer the Spirit deal anyway and have already pre-committed $350 million as a credible commitment that they’ll meet whatever terms the feds extract. If the Feds put it to JetBlue “you can have the Spirit merger if you drop the Northeast Alliance” JetBlue probably says yes. ![]() Not so at all.Ī JetBlue-Spirit deal puts the government in the drivers seat on the American Airlines-JetBlue alliance. That case goes to trial in September and JetBlue says ‘it’ll be resolved one way or another before the Spirit acquisition will be’ so it’s irrelevant. The two airlines entered into a settlement with the government that gives up slots in New York and guarantees seat growth and thus lower fares (upon penalty of losing even more slots). So they’re going in ready to meet a lot of government demands rather than write that check.Īlready the federal government is suing to stop JetBlue and American Airlines from cooperating in their Northeast Alliance, in a deal that the government just signed off on last year. And JetBlue has committed $350 million to Spirit if they fail to close the merger. They have a strong enough hand to extract concessions. Whether the federal government has a strong enough case to win in court isn’t the point. They’re going to fear that means higher fares (which it probably would). ![]() The federal government isn’t going to like losing on the two largest ultra low cost carriers to a merger. ![]() There’s little question that the deal will draw regulatory scrutiny even when JetBlue agrees to divest assets in New York and Boston and South Florida. If JetBlue wins it’s a classic ‘winners curse’ situation. And in the process they add costs to the Spirit operation, too – raises for employees in many cases as well as capital spending to revamp the interiors of Spirit planes. The JetBlue deal takes highly productive assets and transfers them to a less profitable business model. Frontier and Spirit have had much higher operating margins than JetBlue. But the assets are worth more to Frontier than to JetBlue. They are buying planes and pilots to grow. They are buying slots and gates in congested airports, but commit to give up (sell off or lease) the most valuable of those. JetBlue is already overpaying for the assets. Frontier’s $20 a share bid is less than Spirit’s share price at Tuesday’s close by about 10%.
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