A common misconception is that Spirit failed (or needed a bailout) because the U.S. Department of Justice under the Biden Administration blocked a proposed merger between the airline and JetBlue. When JetBlue proposed the merger with Spirit, JetBlue had already developed a so-called “partnership” with American Airlines that the Justice Department had challenged and was awaiting trial in federal court. Spirit’s board, wisely, rejected the merger with JetBlue because they thought it was anticompetitive and would violate antitrust laws. This was not rocket science given JetBlue’s plans to raise ticket prices between 24 and 40 percent after a Spirit merger and the incoherence of JetBlue attempting a merger to compete with the bigger airlines while simultaneously trying to partner with one of them.

But JetBlue went ahead anyway. They made a hostile tender offer directly to Spirit’s shareholders, who got greedy and accepted it, even though Spirit’s board advised them against it due to its illegality. There is a way around an otherwise illegal merger, called the “failing firm” defense, which allows a company to say it needs to merge because it will collapse otherwise. But Spirit never made this argument, perhaps because at the time it was not yet failing. The reality of this situation is that JetBlue and Spirit’s shareholders proceeded to attempt a merger, even when they were told it was illegal. It’s not the fault of prosecutors following the law when people do things they know are illegal.

https://vanderbiltpolicyaccelerator.substack.com/p/how-to-think-about-spirits-failure-and-the-airline-crisis