JetBlue, Spirit Brace for Justice Department Lawsuit to Block Airlines’ Merger

“My sense is they came to the table with their minds made up,” Mr. Hayes said in an interview Monday. He said that JetBlue was prepared to contest a Justice Department lawsuit in court.

A Justice Department spokesman declined to comment. Under an agreement that binds the department’s review of the deal, the government would have to sue to block the transaction by Wednesday or the deal can close, people familiar with the matter said.

JetBlue and Spirit agreed to combine last year in a $3.8 billion deal that aims to create the fifth-largest airline in the U.S. With an estimated 9% of market share, the combined entity would still trail the country’s biggest four airlines:

American Airlines Group Inc.,

United Airlines Holdings Inc.,

Delta Air Lines Inc.

and

Southwest Airlines Co.

JetBlue targets a higher-end flying experience, offering seat-back screens, free in-flight internet and other perks. Under its deal for Spirit, which charges bargain fares and layers on fees for extras, JetBlue has said that it plans to strip seats out of Spirit’s comparatively cramped planes and repaint the airline’s bright yellow jets. Combining would give JetBlue a larger nationwide presence, compared with its current concentration in the Northeast.

The Justice Department for years has been concerned that previous mergers have reduced competition among airlines, The Wall Street Journal has reported, and the department under the Biden administration broadly has taken a tough stance on corporate mergers and antitrust enforcement.

JetBlue shares closed about 1% higher Monday, while Spirit’s stock fell about 8.8%.

JetBlue has said that buying Spirit, the Florida-based discount airline, represents its best chance of growing large enough to credibly challenge the four largest airlines that collectively hold 80% of the market.

Mr. Hayes said that a Justice Department lawsuit would delay potential benefits of the merger. He and Spirit CEO

Ted Christie

said in a joint interview Monday that the joined airline would allow them to combine their aircraft, crews and networks to challenge the bigger airlines’ dominance at major hubs.

Mr. Christie said the deal would also allow Spirit and JetBlue to broaden the nation’s air-transportation network by resuming service to smaller cities that larger carriers have stopped serving and by making the combined airline’s operations more resilient when dealing with weather and other disruptions.

Since striking the deal last July, JetBlue has been trying to convince antitrust authorities that the merger will be good for fliers. In recent weeks, the Justice Department has taken depositions related to the deal from airline executives and sought more data, Mr. Hayes said. He described the department’s inquiries as more of an “investigative process, rather than a genuine engagement.”

Messrs. Hayes and Christie on Monday outlined their case for why combining the two would ultimately help fliers. “Hundreds and hundreds of millions of dollars will be saved, annually,” Spirit’s Mr. Christie said, referring to what he said would be a consumer benefit of the JetBlue-Spirit deal.

Mr. Hayes said evidence shows that when JetBlue has entered a market, the overall amount of passenger traffic on certain routes increases while fares substantially decrease. According to the airline, passenger counts on flights between Boston and Atlanta rose 48% after JetBlue entered the market, while the average fares declined 45%.

Mr. Hayes has said that “JetBlue effect” was cited by the Justice Department in an unrelated legal process. The department is separately suing JetBlue and American over a partnership to sell tickets on each others’ flights at New York City airports and in Boston, alleging that the agreement has made the two airlines collaborators, rather than competitors, on major East Coast routes.

In that case, the Justice Department has said that competitive pressure from JetBlue historically has led to lower prices for customers when the airline enters a market. JetBlue and American have argued in that case that their partnership has helped the two airlines compete against more dominant rivals in the region and that fares haven’t increased as a result.

Mr. Hayes said that he agreed in large part with what he said were Justice Department concerns about a lack of competition among U.S. airlines currently, a landscape made possible by years of consolidation among smaller airlines.

“We’ve been talking about the lack of competitiveness in our industry for several years now,” Mr. Hayes said. “This combination is the remedy to that.”

The planned JetBlue-Spirit deal has gained support from the Association of Flight Attendants-CWA.

Sara Nelson,

the union’s president, said in a Feb. 24 letter to U.S. government officials that workers ultimately will benefit from greater competition in what she called “the anti-merger, merger.”

In arguing for its deal with Spirit, JetBlue said that it is more than three times as effective as Spirit in bringing down competitors’ fares. JetBlue has said that it and Spirit primarily compete with other carriers.

The two airlines overlap on as much as 11% on nonstop routes they both fly, and JetBlue has offered to divest all of Spirit’s holdings in Boston and New York as well as five airport gates at Fort Lauderdale. JetBlue has said the proposed divestitures will allow other ultra-low-cost carriers room to continue their rapid growth.

JetBlue’s deal with Spirit includes an agreement by JetBlue to pay Spirit’s shareholders a $400 million breakup fee if antitrust authorities block the combination, as well as another $70 million to the company.

—Dave Michaels contributed to this article.

Write to Andrew Tangel at andrew.tangel@wsj.com