Wall Street isn't feeling JetBlue's (JBLU) surprise bid for low-cost fare rival Spirit Airlines (SAVE).
"In the near- to medium-term, we view this as a negative for JetBlue. It is a much tougher merger to execute than the proposed Frontier-Spirit merger with greater dis-synergies primarily related to labor costs but also due to greater investments related to changing cabin layouts," said Raymond James analyst Savanthi Syth in a research note on Wednesday. "While leverage levels appear manageable, the increase is likely to weigh on investor sentiment. We admit, we did not see this coming."
The analyst downgraded her rating on JetBlue to Market-perform from Out-perform.
JetBlue offered to buy Spirit for $3.6 billion late on Tuesday, or $33 a share. The bid counters one from Frontier in February, which put forth a $25 a share bid.
JetBlue shares tanked 6% in Wednesday's session as investors fretted about a costly buyout battle.
If Frontier and Spirit combine, the airline would be the fifth largest in the United States and gain a stronger hold out West. It would mark the biggest major airlines deal since Alaska Airlines combined with Virgin America in 2016.
Should JetBlue land Spirit, it would significantly boost its presence on the East Coast. But that robust presence could be a stumbling block to JetBlue winning the new clash in the clouds.
“Unlike the compelling Spirit-Frontier combination, an acquisition of Spirit by JetBlue, a high-fare carrier, would lead to more expensive travel for consumers. In particular, the significant East Coast overlap between JetBlue and Spirit would reduce competition and limit options for consumers. It is surprising that JetBlue would consider such a merger at this time given that the Department of Justice is currently suing to block their pending alliance with American Airlines," Frontier said in a statement in the wake of JetBlue's bid.
The merger between Frontier and Spirit — seen by pros as being more synergistic and consumer friendly —has already come across the radar of Democratic Senators Bernie Sanders and Elizabeth Warren. Both fear the removal of a competitor in the marketplace could send airfare prices higher.
So, it's hard to imagine JetBlue getting off any easier by regulators.
“For decades, the airline industry has been plagued by increasing consolidation, producing massive airline giants while leaving consumers and workers behind. Because the proposed Spirit-Frontier merger threatens to exacerbate these trends — including by potentially increasing prices during a period of high inflationary pressure — we urge the Department of Justice (DOJ) and the Department of Transportation (DOT) to closely review this mega merger for potential violations of the Clayton Act and for concerns under 49 U.S.C. § 41105 and to oppose it if you determine it will threaten competition in the airline industry or ‘the public interest,'" Warren, Sanders and several other lawmakers said in a statement.
Frontier's Biffle said he understands the concern of regulators, but this time it is different.
"Look, I don't know that they are wrong. I think they are concerned on what has happened with past mergers, and we share that concern. That's why this merger is so important today because this is different than anything else we have had in the past," Biffle added.
It's unclear if execs at JetBlue understand those concerns. Wall Street generally hates the deal, however.
"The Frontier proposal will go through the ringer. Obviously JetBlue is a much large carrier than Frontier. There will be some pushback going forward, for sure," said MKM Partners analyst Conor Cunningham on Yahoo Finance Live.
A JetBlue spokesman didn't return Yahoo Finance's request for an interview with JetBlue CEO Robin Hayes.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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