JetBlue Airways Corp’s $3.6 billion bid for low-cost airline Spirit Airlines caught Wall Street off guard on Wednesday, with analysts questioning the benefits of a merger between the two carriers.
Though both carriers have a fleet dominated by Airbus SE, any potential cost savings from the deal will be diluted as JetBlue would need to bump up the pay of Spirit pilots, who are on a lower band, Raymond James analyst Savanthi Syth wrote in a note.
JetBlue said on Tuesday it made an unsolicited $3.6 billion bid for Spirit, at $33 per share, potentially derailing a $2.7 billion merger plan between Spirit and Frontier Group Holdings Inc.
Shares of Spirit fell 2.5% to $26.28 premarket, well below the offer, suggesting investors were skeptical of the deal going through. JetBlue stock was down 3%, while Frontier was also down 4%.
JetBlue’s management is hosting a conference call at 8 am ET on Wednesday where it will speak more about the merger.
Frontier and JetBlue are vying to buy Spirit to create a low-cost airline they hope will lure more leisure travelers, which will help them compete better with legacy U.S. airlines.
However, any combination will likely invite close antitrust scrutiny from President Joe Biden’s administration, which has taken a tough stance against mergers that may reduce competition and increase prices.
JetBlue and American Airlines Group Inc are already facing a lawsuit from the U.S. Department of Justice over their Northeastern Alliance.
JetBlue Chief Executive Officer Robin Hayes said he expects a vigorous antitrust review for any deal with Spirit from the U.S. Justice Department that could last into 2023.
“We struggle with the idea (of a merger) given both airlines are concentrated on the East Coast with significant operations in Fort Lauderdale, and would suspect there will be heavy regulatory pushback,” Brokerage MKM Partners said.
Reporting by Nathan Gomes in Bengaluru; Editing by Krishna Chandra Eluri