There's a reason for an engagement period before a wedding.
The engagement gives both parties a chance to make absolutely sure that a life-long commitment is what they want.
While JetBlue (JBLU) and Spirit Airlines (SAVE) were never officially betrothed, in April, Spirit agreed to talk to JetBlue about its unsolicited $3.6 billion takeover offer.
At the time, Spirit had been planning a $6.6 billion tie-up with low-cost rival Frontier Group (ULCC). But JetBlue's offer at the time represented a 33% premium to that deal, meaning Spirit had a fiduciary duty to its shareholders to engage with JetBlue.
On Monday, Spirit gave JetBlue back its engagement ring, rejecting an enhanced proposal that would have seen JetBlue shed assets to win regulatory approval and to pay a $200 million breakup fee, representing about $1.80 per share, if the acquisition didn't close for regulatory reasons.
Despite the pledge to divest assets, and the promise of a nine-figure settlement if regulators block the deal, Spirit still doesn't believe that a merger would pass regulatory muster and is going forward with its plan to marry Frontier.
JetBlue Wants to Hold Onto the NEA
Spirit entered into a merger agreement Frontier on February 7 before JetBlue made its unsolicited bid, and now, unless JetBlue sweetens the pot again, Spirit and Frontier look to be headed to a merger.
"After a thorough review and extensive dialogue with JetBlue, the Board determined that the JetBlue proposal involves an unacceptable level of closing risk that would be assumed by Spirit stockholders," said Mac Gardner, chairman of Spirit's board.
"We believe a combination of JetBlue and Spirit has a low probability of receiving antitrust clearance so long as JetBlue's Northeast Alliance (NEA) with American Airlines remains in existence."
Launching in February 2021, the NEA began coordinating schedules at Boston's Logan Airport, New York's JFK and LaGuardia airports and New Jersey's Newark International airport.
The majority of JetBlue's plan to increase capacity in 2022 is tied to the NEA, according to the Center for Aviation.
But in September, the U.S. Department of Justice mounted a legal challenge against the alliance, claiming that the partnership in the Boston and New York markets would lead to less competition in those regions.
This is one of Spirit's main sticking points for choosing Frontier.
"As you know, Spirit and many other airline and air travel constituencies have publicly opposed the NEA on grounds that it is anticompetitive. We struggle to understand how JetBlue can believe DOJ, or a court, will be persuaded that JetBlue should be allowed to form an anticompetitive alliance that aligns its interests with a legacy carrier and then undertake an acquisition that will eliminate the largest ULCC carrier," Spirit execs said Monday.
JetBlue Isn't Willing to Let Go of the NEA
Spirit says that when it agreed to continue negotiating with JetBlue in April, part of the talks stated that JetBlue would have to abandon the NEA at closing.
But in JetBlue's updated proposal Monday, the company said that it strongly believe that the NEA will be allowed to continue because "the alliance is delivering customer benefits promised," and that it is not a factor in its proposal.
"Customers shouldn’t have to choose between a low fare and a great experience, and with JetBlue, it’s possible for customers to have both,” JetBlue CEO Robin Hayes said. “Both the NEA and the proposed Spirit transaction are strategic actions that accelerate our existing growth plan and bring the JetBlue Effect to more customers in the Northeast, Florida, and around the country.
JetBlue also says that it has significantly less overlap with Spirit in terms of flights, seats, and available seat miles that Frontier does in the metro areas that are served by both.
JetBlue says it overlaps with Spirit only on 48 nonstop routes, compared to Spirit and Frontier's overlap on 76 nonstop routes.
If JetBlue doesn't want to give up the NEA, it will have a tough time convincing Spirit that its proposal is the one to go with.
