A federal judge on Tuesday blocked JetBlue Airways' proposed $3.8 billion takeover of Spirit Airlines, a victory for the Justice Department, which argued the deal would harm travelers.
In his 109-page ruling, Judge William G. of the U.S. District Court for the District of Massachusetts Young sided with the Justice Department in ruling that the merger would lessen competition in the airline business.
The proposed merger would have created the fifth largest airline in the country. The Justice Department argued that allowing smaller, lower-cost airlines like Spirit to keep fares down would hurt consumers by allowing JetBlue, which charges higher prices than Spirit, to acquire them.
The four largest US airlines – American Airlines, Delta Air Lines, Southwest Airlines and United Airlines – control two-thirds of the market. The merger would have given JetBlue a 10 percent market share, just shy of fourth-largest U.S. airline United, which has 16 percent.
JetBlue's lawyers argued in court last month that the merger would allow it to better compete with the big four national airlines, lowering overall prices. The Justice Department argued that a larger JetBlue would act like its larger competitors.
Judge Young agreed with the government, ruling Tuesday that the merger would “further encourage JetBlue to abandon its roots as a maverick, low-cost carrier.” He said Spirit plays an important role in the market as a small, low-cost alternative to major airlines.
“Spirit is a small airline,” he said in the ruling. “But there are people who love it. For Spirit's dedicated customers, this one's for you.
Spirit's stock price fell more than 50 percent on Tuesday afternoon following the news, while JetBlue's stock price rose 4 percent.
As part of the merger agreement, JetBlue agreed to pay $70 million to Spirit and $400 million to its shareholders if the deal is blocked. In a joint statement on Tuesday, the airlines said they disagreed with the ruling and were evaluating their options.
“We continue to believe that our combination is the best opportunity to increase much-needed competition and choice by bringing lower rates and better service to more customers in more markets, while improving our ability to compete with more U.S. carriers,” the companies said.
The ruling comes just weeks after Alaska Airlines announced plans to buy Hawaiian Airlines for $1.9 billion. If approved, the deal would give Alaska about 8 percent of the airline market.
Saint Nergar And Niraj Chokshi Contributed report.