Mike Blake/Reuters
A Spirit commercial airliner prepares to land at San Diego International Airport.
New York CNN  — 

JetBlue Airways and Spirit Airlines filed an appeal late Friday of the federal court ruling from earlier this week that had blocked their proposed merger on antitrust grounds.

The two-page appeal filed after the market close on Friday did not lay out any legal argument for the appeal. It simply notified the court that the two airlines would be going forward with their efforts to combine and form the nation’s new fifth largest airline.

The airlines had previously signaled they disagreed with the decision to block their merger.

“We continue to believe that our combination is the best opportunity to increase much needed competition and choice by bringing low fares and great service to more customers in more markets while enhancing our ability to compete with the dominant U.S. carriers,” said the two airlines on Tuesday following the decision.

Shares of Spirit, which have lost most than half their value since the original court decision blocking the deal on Monday, jumped 10% in after-hours trading on news of the appeal. Meanwhile JetBlue shares fell 2%.

Spirit shares had already closed up 17% in regular-hours trading Friday after Spirit had tried to assure investors that the decision blocking its purchase by JetBlue would not force it out of business.

Spirit was a pioneer in offering ultra-low base fares in the US market, but charging extra for virtually all other options, including carry-on bags. Its fares prompted major airlines to offer a certain number of no-frills “basic economy” seats on their planes.

It also prompted concerns that its purchase by JetBlue would lead to higher fares across the industry — concerns which resulted in the Justice Department’s antitrust case that blocked the deal.

“Today’s ruling is a victory for tens of millions of travelers who would have faced higher fares and fewer choices had the proposed merger between JetBlue and Spirit been allowed to move forward,” said Attorney General Merrick Garland on Tuesday following the decision. “The Justice Department will continue to vigorously enforce the nation’s antitrust laws to protect American consumers.”

A Justice Department spokesperson said it had no comment on the the airlines’ appeal, which was not unexpected.

Decades of airline mergers

The US airline industry has gone through more than 20 years of mergers and consolidation before this deal was announced. The 10 major airlines that existed in 1999 have been combined into four major carriers — American Airlines, United Airlines, Delta Air Lines and Southwest Airlines — through a series of deals, often done as part of a bankruptcy proceeding. Those four large carriers carry about 80% of the nation’s air traffic.

The mergers have resulted in a much more profitable US airline industry, but far fewer choices for US air travelers, which can result in higher fares.

The Biden administration has taken a much more aggressive approach in fighting mergers and combinations, including in the airline industry. Ahead of this deal it filed a federal lawsuit that challenged the alliance in the the Northeast United States between American and JetBlue. That alliance was dropped as JetBlue tried to win approval of its purchase of Spirit.

But even without the deal being allowed to go forward, it is possible that Spirit could go away. A note by Cowen airline analyst Helane Becker late Wednesday speculated that Spirit could be forced to liquidate because aircraft leasing companies, which own more than half of Spirit’s 200-plus Airbus jets, would be more likely to repossess the planes and find other customers rather than to negotiate new financing terms.

The note said that many of those aircaft could be purchased for use overseas by foreign carriers, which could reduce US capacity if it were to occur, and put further upward pressure on airfares beyond what would occur if Spirit were to merge with JetBlue.

“We recognize this sounds alarmist and harsh, but the reality is we believe there are limited scenarios that enable Spirit to restructure,” Becker wrote in a note to clients Wednesday. “We believe Spirit will first look for an alternative buyer, but another airline may get the same pushback [from antitrust regulators.]”

Other analysts didn’t predict bankruptcy or liquidation, but still forecast a difficult course for Spirit trying to make it on its own. JPMorgan Chase’s airline analysts wrote in a note that while “we are not (yet) predicting an immediate” bankruptcy filing by Spirit, “we can not reasonably identify a viable return to profitability any time soon.”

But the JPMorgan analysts’ note suggests that JetBlue would be better off if the appeal fails and the deal does not go through. The note about Tuesday’s decision included the headline, “JetBlue Dodges a bullet.” The analysts said that while JetBlue was still interested in expanding through acquiring Spirit’s aircraft and pilots, it might want to walk away from the $3.8 billion deal as originally crafted.

“We believe JetBlue was wholly unprepared (or unwilling) to proceed with the originally-crafted deal economics (the price was simply just too much to pay),” the JPMorgan analysts wrote on Tuesday.

And the analysts said they believe the appeal will prove unsuccessful, and that JetBlue would file the appeal because it was legally bound to do so under terms of the purchase agreement.

“We have no reason to believe its expected (contractual) appeal will alter the outcome,” they wrote.

Spirit losses to continue

Spirit said in the earlier Friday filing that it expects to beat analysts’ expectations for the end of the year. But that doesn’t mean a profit — it just means the company believes it will lose less money than predicted in the fourth quarter, which would still leave it in a worse position than the fourth quarter of 2022, when it was narrowly profitable. The company also wants to refinance $1.1 billion in debt due in September 2025.

In its guidance Friday, Spirit Airlines said its revenue should come in at $1.32 billlion, a bit better than the forecast of $1.31 billion. It put its operating losses between $158 million to $172 million, down from the $178 million operating loss in the third quarter, and better than forecasts of a $197 million loss.

But the quarter will still be worse than the fourth quarter of a year ago when it had revenue of $13.9 billion and an adjusted operating profit of $58 million.

All US airlines were hemorrhaging billions during the first two years of the pandemic, despite receiving billions of dollars of federal assistance to keep flying and prevent widespread layoffs. But as demand for air travel bounced back in 2022, so did profitability at the larger carriers.

But smaller carriers — like Spirit — that offer lower fares to attract bargain-hunting leisure travelers have continued to struggle. Following $1 billion in losses in 2020 and 2021, the company lost $264 million in the first nine months of 2023, in addition to the loss it is due to report next month for the fourth quarter. It is forecast to lose another $310 million in losses this year, according to analysts surveyed by Refinitiv.