Low-cost airlines JetBlue Airways and Spirit Airlines have terminated their $3.8 billion merger agreement following a US judge's decision to block the deal in January due to anti-competition concerns, Reuters reports.

The merger aimed to create the fifth-largest carrier in the United States but faced regulatory hurdles that ultimately led to its demise.

Regulatory Approval Doubts

JetBlue CEO Joanna Geraghty expressed doubts about obtaining regulatory approval, citing the low probability of moving forward with the merger. The decision came after US District Judge William Young ruled the proposed deal likely to harm competition in the US aviation market and could impact ticket prices.

"Even if the ruling was overturned on appeal, we simply don't see a path to regulatory approval by the required July 24 deadline," Geraghty told JetBlue employees.

Spirit Airlines, which faced financial challenges even before the proposed merger, now confronts its problems alone. Analysts warn of potential bankruptcy if the airline cannot stabilize its finances. 

"Throughout the transaction process, given the regulatory uncertainty, we have always considered the possibility of continuing to operate as a standalone business and have been evaluating and implementing several initiatives that will enable us to bolster profitability and elevate the Guest experience," Spirit CEO Ted Christie said in a press release.

Additionally, Spirit is grappling with the grounding of dozens of Airbus planes due to an engine defect and is expecting compensation from Pratt & Whitney.

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Spirit Airlines Remain Optimistic

Despite the setback, Spirit Airlines remains optimistic about its future. The company is working to refinance its debt and has projected revenue for the first quarter above analysts' expectations. Spirit CEO Ted Christie reassured shareholders, stating the airline can continue as a standalone business.

Throughout the merger process, Spirit received $425 million in prepayments from JetBlue, with an additional $69 million related to the agreement's termination. However, JetBlue's shares rose 7% following the termination announcement, while Spirit's shares tumbled 17% in premarket trading.

JetBlue CEO Joanna Geraghty reflected on the failed merger, describing it as a bold attempt to shake up the industry status quo. However, with regulatory opposition and legal challenges, the probability of gaining approval became increasingly unlikely.

While the termination of the merger deal marks a setback for both airlines, it aligns with the Biden Administration's efforts to promote competition and lower consumer costs. The administration has used antitrust actions and other enforcement efforts across various industries to achieve this goal.

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