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• JetBlue is counting on its capability to lower fares of other airlines and boost competition to get regulatory approval
• Lack of Airbus production slot hindering JetBlue’s growth made the aquisition seem more appealing
JetBlue Airways Corp (NASDAQ: JBLU) presented a strong defense for its unsolicited $3.6 billion bid to buy the ultra-low-cost carrier Spirit Airlines Inc (NYSE: SAVE). JetBlue is “highly confident” of securing regulatory approval on time for the deal.
The New York-based carrier on Tuesday made an all-cash “superior proposal,” potentially starting a bidding war and sabotaging an already signed $2.7 billion merger plan between Spirit and Frontier Group Holdings Inc (NASDAQ: ULCC).
Experts think the proposed acquisition offer will attract close antitrust scrutiny from the Biden administration, which has taken a tough stance against mergers that may lessen competition and increase prices for consumers.
JetBlue said while it expects a lengthy regulatory process, the carrier is counting on its track record of lowering fares in new routes and increasing competition to get the approval.
“When we grow and introduce our unique value proposition onto new routes, legacy carriers lower their fares, and customers win with more choice,” Chief Executive Robin Hayes said in a statement.
However, analysts are not entirely sure whether the government will buy the argument as JetBlue’s fares are generally higher than Spirit’s.
Lack of Airbus production slot hindering growth
A lack of future production slots for Airbus jets is also a reason behind JetBlue’s desperate move.
The airlines said it is growing large enough, and Airbus’s lack of slots is hindering JetBlue from competing with the four biggest carriers, which control about 80% of the US domestic market.
“The supply of airplanes is very challenging for the next few years,” Hayes said on a conference call with analysts. “This sets us up with a compelling order book.”
As Airbus jets already make up most of both carriers’ fleets, combining existing orders from both companies is critical for JetBlue’s growth, the CEO said.
Airbus customers face a wait of two to three years for A320 delivery slots.
While Spirit is expected to receive 120 of the A320 through 2027, JetBlue holds outstanding orders for 64 A321s and 62 of Airbus’s smaller A220 aircraft.
If the merger goes through, the combined airline would have 455 planes and 312 Airbus jets to be delivered over the next six years, “mitigating the persistent challenge” of limited production, Hayes said.
Picture Credit: Flight Global