Spirit CEO Was Right About JetBlue’s Intentions

In pop culture references, you might refer to this as JetBlue Airways going all yakuza or medieval.

(Full disclosure: I stole that from my favorite TV show, “Billions,” or at least it was my favorite until the wonderful Damian Lewis left the role of Bobby Axelrod last year. But I digress.)

What had previously been an above-board attempt by JetBlue to acquire Spirit Airlines in an all-cash deal, a deal that was rebuffed by Spirit in favor of a previous offer to merge with Frontier Airlines, has now devolved into literal hostility.

On Monday, JetBlue announced a hostile takeover bid of Spirit and urged Spirit Airlines shareholders – scheduled to meet on June 10 to vote on the Frontier merger – to reject the offer from Denver-based Frontier.

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Oooh. Gettin’ juicy, isn’t it?

All of which tells me two things.

One, Spirit CEO Ted Christie was right.

And two, JetBlue might have deeper problems than we think.

It was two weeks ago when Christie noted that he “wondered whether blocking our deal with Frontier is, in fact, their goal.”

He is correct of course. By passenger count, JetBlue Airways is the seventh-largest U.S.-based carrier behind American, Delta, Southwest, United, Alaska and Spirit. A Spirit-Frontier merger would make the combined airline the fifth largest in the country.

Of course JetBlue wants to block this. Two words – market share.

Of greater concern is JetBlue’s future. It’s highly likely JetBlue needs this for the very reason that Spirit rejected not only JetBlue’s initial offer but its subsequent enhanced offer. Christie and Spirit are concerned about regulation.

Right now, this is a risky proposition. The Department of Justice and six states are already suing JetBlue over its ‘Northeast Alliance’ with American Airlines to share gates and flights, saying it has all the makings of a monopoly in key markets in New York, Boston and other cities.

Spirit rightly fears that the DOJ, still mulling the JetBlue-American combination, would reject a JetBlue takeover of Spirit. Unless JetBlue quietly would agree to back out of the Northeast Alliance if it received assurances that an acquisition of Spirit would be approved by regulators.

It's a tricky and slippery slope, to be sure.

Previously, such mergers and acquisitions went fairly smoothly and were straightforward. Larger airlines gobbled up smaller, sometimes, struggling carriers, and it was a win-win for both companies and for stockholders. Delta did it with Northwest, United with Continental and American with US Airways. No issues.

This, well this has gotten ugly. Now JetBlue just reeks of desperation by initiating a hostile takeover, although Spirit has again shown to be the bigger person in the fight by agreeing to do its due diligence.

“Consistent with its fiduciary duties and applicable law, and in consultation with outside financial and legal advisors, the Spirit board of directors will carefully review JetBlue's tender offer to determine the course of action that it believes is in the best interests of Spirit and its stockholders," the company said in a prepared statement. "Spirit stockholders are urged to take no action with respect to the JetBlue tender offer at this time pending the board's evaluation of the offer."

Now there’s just one remaining hurdle – how hostile is hostile going to get?