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JetBlue (NASDAQ:JBLU) may be able to complete its planned purchase of Spirit Airlines (NYSE:SAVE) after its latest agreement to divest slots at key airports, though when the deal may cross the finish line is another story, according to a Citi analyst.
“The Street has been far too optimistic on the timing,” Citi analyst Stephen Trent told CNBC on Thursday. “I think it’s going to take a long time, and I also believe that if you are JetBlue, there’s the risk that you are going to be overpaying for this asset. You are giving up the barn.”
The comments come as a report on Tuesday indicated the Department of Justice still plans to move forward with its October trial to block the JetBlue (JBLU) deal despite a recently announced divestiture plan. The DOJ hasn’t changed its opinion that the combination of two competitors can’t be solved via divestitures, according to the Dealreporter item. One source told the publication that the issue is not that JetBlue (JBLU) hasn’t offered enough concessions, but that the merger isn’t “fixable.”
The two sides are scheduled to square off in a Boston courtroom on Oct. 16 in a trial that’s scheduled to last four weeks.
The latest report comes after JetBlue (JBLU) last Monday said it will transfer all Spirit Airlines (SAVE) holdings at Boston and Newark airports to Allegiant Travel (ALGT), as well as five gates and ground facilities at Fort Lauderdale’s airport, “to promote ultra-low-cost carrier growth.”
In June, JetBlue (JBLU) announced that it would divest all of SAVE’s holdings at New York’s LaGuardia Airport to Frontier (ULCC).
“I think on a long-term basis, JetBlue’s pledge to relinquish airport assets—Boston, Newark, and Laguardia—that’s 15% of their capacity,” says Trent, who has a neutral rating on JetBlue and a $7.50 price target. “Is that going to be enough for the courts to agree to this? I think possibly yes.”
The airlines may have a stronger case and a better chance of beating the DOJ after JetBlue (JBLU) and American Airlines (AAL) had their Northeast Alliance ended after a court ruled that the venture violated antitrust laws, according to the Dealreporter item on Tuesday, which cited an attorney who worked on the NEA case.
“Yet in this case (SAVE/JBLU), the DOJ would rather fight and lose,” the unidentified attorney told the publication. “It’s up to the courts now.”
Trent’s comment about JetBlue (JBLU) possibly overpaying for Spirit (SAVE) comes after the low-cost carrier warned a week ago that during the last few weeks it has seen heightened promotional activity with steep discounting for travel booked for the second half of Q3 through the pre-Thanksgiving travel period.
Spirits Airlines (SAVE) now expects Q3 revenue of $1.245 billion to $1.255 billion vs. a prior range of $1.3 billion to $1.32 billion and the consensus mark of $1.32 billion.
