Yet Another Value Podcast - Valorem Research's Lionel Hutz provides his Spirit / JetBlue post-trial breakdown

Episode Date: December 20, 2023

Lionel Hutz, Editor of the Valorem Research Newsletter on Substack, joins the podcast today to provide his Spirit / JetBlue post-trial breakdown. For more information about Valorem Research and to subscribe, please visit: https://www.valoremresearch.com/ Chapters: [0:00] Introduction + Episode sponsor: Alphasense [1:44] General takeaways from Spirit / JetBlue post-trial and post-trial briefs [7:56] DOJ's case, what citing of Philadelphia National and Baker Hughes cases as precedents means [13:17] Harm to local markets - thoughts on this framework as it applies to the bear case [16:04] JetBlue's "having it both ways" arguments and where Lionel thinks JetBlue scored points with their arguments [23:21] 51 presumptive markets and how they are relevant to this case + the government's skepticism of divestitures [33:20] How JetBlue and the government handled the expert witness, what deficiencies that JetBlue finds with the government witnesses [39:39] Government's points regarding the hot docs [42:40] How precedent being used to support both sides of the case [50:03] Evidence supporting JetBlue's position and evidence supporting DOJ's position [57:26] The fourth bear case on relevant markets [1:03:35] Timing on ruling [1:12:33] Legacy of the outcome for this case Today's episode is sponsored by: Alphasense This episode is brought to you by AlphaSense, the AI platform behind the world's biggest investment decisions. The right financial intelligence platform can make or break your quarter. AlphaSense is the #1 rated financial research solution by G2. With AI search technology and a library of premium content, you can stay ahead of key macroeconomic trends and accelerate your investment research efforts. AI capabilities, like Smart Synonyms and Sentiment Analysis, provide even deeper industry and company analysis. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As a Yet Another Value Podcast listener, visit alpha-sense.com/fs today to beat FOMO and move faster than the market.

This episode is brought to you by Alpha Sense, the AI platform behind the world's biggest investment decisions. The right financial intelligence platform can make or break your quarter. Alpha Sense is the number one rated financial research solution by G2. With AI search technology and a library of premium content, you can stay ahead of key macroeconomic trends and accelerate your investment research efforts. AI capabilities like smart synonyms and sentiment analysis provide even deeper industry and company analysis. Alphasense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit alpha dash sense.com slash fs today to beat

FOMO and move faster than the market. That's alpha dash sense.com slash FS. All right. Hello. Welcome to yet another value podcast. I'm your host, Andrew Walker. I'm checking to make sure my mic is working with me today. I'm happy to have on.

Oh, if you like this podcast, I mean a lot. If you could rate, subscribe, review, wherever you're watching or listening to it. I'm all over the place today because I've got one. One of the people's favorite guest, my favorite cartoon lawyer, Lionel, Lutts, Lionel, how's it going? Going really well. I am so happy to be back. You can't get rid of me on, like, termites at this point.

I'd full infestation. Guess so anything, didn't you just have Lionel? The answer is yes, but there is a lot to talk to Lionel about. Before we get there, just going to remind everyone, nothing on this podcast is investing advice. That is always true, but particularly true today. You can go hear all of my previous disclaimers on the Spirit JetBlue merger, but, you know, this is a hairy legal situation with,

probably a lot of downsides. Spirit, as the closing arguments make clear, Spirit's not doing too well these days. But, you know, this is an area of legal situation. I am not a lawyer. Lionel is a cartoon lawyer. So please keep all that in mind, consults financial advisor, do your own diligence, do your own work, all that. Anyway, Lionel, the reason we're having you on is because on Wednesday, December, December 13th, Wednesday, December 13th, Spirit and Jepp Blue and the government filed all of their closing briefs, closing briefs, closing arguments, findings back, conclusions, law, all that. We're having you on probably for the final spirit podcast that we're going to do, which makes me sad.

But we're having you want to talk about the findings from those findings. So I'll just toss it over to you general takeaways. You know, the government put out their post-trial briefs in findings law. JetBlue put out there. What's your general takeaways from them? Yeah, well, first of all, I have to, you know, applaud the JetBlue writing here. It was really a well-done post-trial brief, very efficacious writing. And so, you know, I try to divorce the quality of the arguments from just the quality of the writing, but certainly the JetBlue brief reads very persuasively.

You know, both sides certainly regurgitated a lot of what we heard happened at trial. You know, there are not just the briefs, but there are the proposed findings of fact and the conclusions of law submitted along with these briefs of hundreds of pages. And, you know, there are pressure points or deficiencies in each. I will say overall, I found JetBlue's briefing to be substantially more credible. And I think they raise some serious deficiencies in the DOJ's briefing, which I'm happy to dive into. Yeah, no, that's great. Let me look, in total, I think there's a thousand pages of rulings here, right? It's like six different things, three from each sides. It's a thousand pages.

So I feel like I've got stuff just oozing out of my brain here. But I think the best way to structure it is, let's start just by walking through the DOJ's case, right? So just kind of going through those trial briefs and their findings of facts. And one thing that jumps out to me, again, this might be leading the witness. But one thing that jumps out to me, especially the findings of fact, the government comes out and really starts by trying to lower the bar frame themselves, right? Direct quotes are, hey, I think it's this needs to be blocked and this is the direct quote. if there's a less than 50% chance of harm, this needs to be blocked, which, wow, that's a really low bar. And then they even say, hey, to block this, we do not have a high bar to block this.

The president does not set a high bar. So they're literally telling you they're trying to lower the bar themselves. I guess, again, I'm not a lawyer. I have a late person. My question to you would be, is this typical in kind of a trial? Just come out and tell the judge, hey, this is a really low bar for us to hit? Or was this kind of the government telling on themselves that they think they have a weak case that kind of couldn't go over a high? Yeah, you're always going to set forth the legal precedent and the standards and say why

you can meet those standards or rebut those standards. And it's very typical, you know, to characterize these standards in a way that sounds more advantageous to your own position. So I'm not surprised they did it. But I do believe that they perhaps slightly insincerely characterize the standard in some points. I mean, you're right. So the 50% or 51% that comes from the ultimate burden of proof that the DOJ has, which is to prove by a preponderance of evidence of substantial harm. And preponderance of evidence is more likely than not, right? It's, it's 50% plus us until oh, 51%, whatever. You know, it's more, the needle has to not be in the middle and it has to be, you know, moving in your favor. But the problem is they really conflate it with the

issue of substantial harm. And that's where the tension arises because there are multiple places and we can get into it, you know, they do this when they apply the timely, likely, sufficiency entry standard in terms of what newcomers would have to replace. They really misquote the standard there as well, and they effectively remove the word substantial from harm in the way they characterize that legal standard. So to answer your question, I'm not surprised they did it, but I am surprised perhaps at how bold they were in attempting to really lower that bar in a way that I don't think Judge Young will respond positively to.

I think Jeff Blue would even say they not only tried to lower the bar. Jeff Blue would say they tried to play dirty pool because at one point in Jeff Lewis, I think it's their post-closing trial briefs. They say, hey, the government, they've got this great sentence where they're talking about harms and stuff. That is not. And they tried to pass it up as this is a precedent case. And Jeff Blue says, that's not a precedent case.

What they did is they took two unrelated cases, and they rafted the words for two unrelated cases together to make it seem like there's a precedent case with a commentary that's better for them than it really is. Was I misinterpreted that, or was it might kind of say JetBlue was trying to call dirty pool on that? No, I think that's right. I mean, look, they do it in several places. I think, you know, for me, the most egregious was probably the timely, like, insufficiency area where they essentially wholesale drop that. that substantial standard. But you're right, they did, you know, combine a few cases in a way that made it read like the standard was lower. And I think, you know, look, you're not going to get anything past Judge Young. I mean, he had a five-minute tangent in closings where he was asking

the DOJ, just what exactly is the presumption here? When you say presumption, is it a presumption that pops when JetBlue has met its burden of production? Is it a presumption that lives on? how do you characterize this? And if you actually notice in the DOJ's conclusions of law, there is a case in there that is completely unrelated to antitrust. It's Terry V. I forget what exactly it is, but you can look up later, unrelated to antitrust, where they say, a presumption of this sword is a presumption of the middle ground, and it's one of Judge Young's own opinions. And so, you know, the DOJ is really just trying to grab anything they can that seems reasonable to characterize these standards in a way that is most advantageous to them,

even if it perhaps, you know, even if these standards aren't even coming from the same field of law. Perfect. So just coincides the DOJ's case. You know, the DOJ cites very heavily the Philadelphia National case. And, you know, there are two cases. There are three cases if you include, I think it's Brown, but there are really two cases that both sides talk about a lot.

The DOJ talks about the Philadelphia National case a lot. JetBlue talks about the Baker Hughes case a lot, and Baker Hughes came up a lot at Trout. I'm a lay person, obviously, but I just wanted to ask, the government cites Philadelphia National a lot because they believe, obviously, it's great for their case. It's a great precedent. So could you just walk through for the lay people what the Philadelphia National piece is and what the precedent, it kind of says that the government thinks says, hey, this precedent says JetBlue Spirit should be blocked. Yeah, well, so there's a few cases in this lineage. The first is Brown Shoe Inc. I think it was

a 1962 case, that essentially was the first case blessed by the Supreme Court that set forth this quick look doctor. We'll look at combined market shares of the entities. And if it seems like an issue, it rises to a certain level, then that is, you know, there's some presumption of anti-competitive behavior there. Philadelphia National Bank was, I believe, one year later, two years later, shortly after. And it expounded upon that in a few ways. But I think what's most notable about Philadelphia National Bank is not really the decision itself, but the decisions that came immediately after it that expounded upon Philadelphia National and cited to it, which essentially said that once the government has met its burden of demonstrating there's a prima facie case and established this presumption, the defendants have to demonstrate by a clear showing.

that the merger would be pro-competitive or that the government's position is not based on a reality, essentially. And the issue with that clear showing language is it sort of injected this burden of persuasion into the framework and placed that burden of persuasion on the defendants. Now, the government is bringing this case. The burden of proof is always with the government. And so Baker Hughes would ultimately sort of clarify that that case progeny. It would overturn a lot of the cases that cited to Philadelphia National Bank. Philadelphia National Bank remained intact because it itself did not include that clear showing language. But Baker Hughes clarified the framework. It said, here are the three steps. And it said step two. So after the

government has met its initial burden. What did you, so Bayer Hughes, as you said, it's a three steps. So we're talking, why don't you just lay out the three steps that Baker Hughes says? Yeah. So I guess before the three steps, you know, the government will identify a relevant market. And it'll be, you know, usually product and geography. And then within that market, they will generally show a presumption of anti-competitive effect by way of the combined market shares of the merging entities. That will get them over their initial hurdle of step one. And then the ball goes to the defendant's court. And the defendants then have to produce evidence. It's a burden of production, not a burden of persuasion. And that's important. And that's kind of what

Baker Hughes clarified. It says, this is a burden of production. The defendants just have to produce evidence. They don't have to essentially sway us with this clear showing. They have to produce evidence that rebuts the government's presumption of anti-competitive harm. And then if the defendants have met that step two, then we go to step three, where the government has an additional burden of production that merges with the ultimate burden of proof, because the burden of proof is always with the government. They always have that burden. And the government has to supply additional evidence of anti-competitive behavior for why the merger should be enjoyed. And now a quick break to remind you that this episode is brought to you exclusively

by AlphaSense, the AI platform behind the world's biggest investment decisions. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit Alpha-dashcense.com slash FS today to beat FOMO and move faster than the market. That's alpha-dash-sense.com slash FS. That's perfect. So I guess just going back to it, and we'll be talking about Baker Hughes in a second, but the government does cite Philadelphia National Bank quite a bit.

I think part of that is because under the Baker Hughes framework, I think the burden might be a little bit heavier on the government, a little bit lighter on the defendants. But why else do you think the government is citing Philadelphia National Bank so frequently in these arguments? Yeah, well, there's language in Philadelphia National Bank, and I forget the exact language, and some of the case progeny that essentially says that you can't weigh markets against each other, that relevant markets are distinct. there are several other cases that the DOJ cites in support of that contention.

But that is a major crux of the DOJ's case. There are a few bear arguments, but this is one of the bare arguments that has come to me that I think is interesting, right? They're saying, hey, look, if you go back to the post-closing trial, closing trial arguments, right? And I did a podcast, full podcast with this on MDC, with MDC, if we can go to list it. But if you go back to the closing trial arguments, which you were there for, the judge, judge asked a witness, he said, it seems to me that one of the things I have to weigh in my mind in this case is the harm in local markets, right, which is a route to route, Orlando to Las Vegas, local markets, the harm in local markets from this merger, and weigh that against the benefits

on the national scale, where JetBlue and Spirit merge, and now you've got kind of a fifth competitor that can compete with the big board who add 80% of the market, right? And the bears point out to me, hey, this is why Philadelphia is so important here. Philadelphia says you can't use benefits in one market to offset arms in another market. That's where the government's tried to go with this. What do you think about that framework as it applies here? And obviously, we'll talk about all sorts of other things with their house. What do you think about that framework in that bear case? Yeah, I mean, I think it's generally a valid contention. I think there are a lot of issues. When it comes to whether or not to view this with a national or local lens,

I mean, there are issues with the factual evidence that came out in the trial. There are issues with the expert testimony and what factual evidence they used in support of their conclusions. And ultimately, there's an issue of kind of overall reasonableness, you know, in terms of how likely new entrance will be in terms of entering these routes that Spirit may leave and whether or not that actually requires a one-for-one matching of what Spirit currently offers. Certainly, you know, weighing upper-class customers against lower-class customers, you know, upper-class against lower-class, how elit to some of you want that. That was perhaps that's oversimplification. But, you know, I think had the DOJ characterized the relevant market

differently, it would have mattered more. But the reality is even within a single origin destination pair, you have, you know, both classes of customers, if you will, who, you know, who will see benefits from the JetBlue Spirit merger, you know, the benefits of nicer planes of, you know, better routes, et cetera. So I think there's so many issues here in terms of factual evidence, you know, the expert testimony, and even within the narrow lens of the DOJ's own standard here, I still think that JetBlue has room to rebut that presumptive harm. What are the things, we can talk about it. There's so much I want to talk to you about. And again, I encourage everyone who wants to listen to this podcast, go read at least the post-close

trial briefs. I think you'll get a lot more from it. But I can't force you to, obviously. One of the things JetBlue says is, hey, government, you try. to have it every which way. And they see this along a lot of lines, right? In particular when it comes to the National Leadership of the Rocks, but I'll give a small example, and then you can kind of bed in. But one of the ways the governing tries to have it is the government says, hey, Jeff Blues over there arguing that spirit is in maybe not the stress, but spirit is flailing, right? They're losing money. They're having to cancel growth plans. They're having to dial back their growth plans. They're delaying plain orders, right? Jet blues over there arguing that

Spirit is a flailing firm. And you should not believe that for a second. Spirit has said they'll get made whole on the GTF issues. Spirit is going to be a viable competitor for years to come. Ignore the leverage, ignore the leverage, right? So they have that there. But then in the government's closing arguments, they also say, hey, if JetBlue finishes this deal, JetBlue will be a leveraged entity. And as a leveraged entity, they won't be able to grow as quickly. They won't be incentive to compete as much. So that's just a small example, but the government's trying to have it both ways, right? Ignore Spirit's leverage. factor in JetBlue's leverage. And there are, that's, again, that's small. There are some much fair examples when it comes to the routes. But I just wanted to ask you about the kind of habit both waysness and JetBlue explicitly makes it in their arguments. The habit both ways ness that JetBlue's arguing for. Look, I mean, you're spot on. In terms of the flailing firm defense, you know, they do say that. They say JetBlue, the combined entity will not be able to grow as quickly. But at the same time, you know, they say that, well, the routes that new entrance will be flying. It really should replace not just the routes that Spirit is flying

now, but also the routes that Spirit would grow into. And that is a huge tension that you point out, right? Because, you know, Spirit won't be growing into these routes. And in fact, they've decided to divest or to leave to exit certain routes because of the financial hardship that they're facing. And so I think you're absolutely spot on that, you know, in one breath, They say, you know, spirit is going to be growing and, you know, new ULC entrants. ULCC entrance need to not just match the existing routes, but those growth routes. And then in the next, they say that, you know, the combined entity is really going to struggle and there's going to be no growth at all.

So I think that's a major, a major tension, even if it's a relatively minor fact. I think the larger habit both ways issue is the DOJ expert. used largely national data to account for the harm to the consumers. And it's not, you know, it's really attenuated from the actual origin destination routes that they allege are presumptively anti-competitive. That to me is a larger issue and perhaps fatal issue to the DOJ's case. Well, this comes to, and I should just mention the start, Lionel has the new Valor substack, which I'll include a link to in the show notes, as if people,

people who listened to the Lithuania podcast last week. No, I was a, I'm going to call myself a day negative one subscriber because I told Lionel over a year ago I thought he should do this. I'm really happy. I just got that. I'd encourage everyone to check it out. But in your kind of write-up of the closed trial arguments, you labeled three points that you kind of thought JetBlue really scored points on in these briefs. And the second point was just to build on what you just said was the DOJ's attempt to confine judge on to local markets, ignore supply elasticity and is untethered from its own expert's testimony. So why don't you just dive into that second point? Yeah. So I guess the second half of that second point is largely what I just said, that

the expert testimony is based on national data. And so you really can't say that this is a localized harm or that the localized harm has been proven with any modicum of certainty when in fact that harm is based on data that the DOJ would actually tell the court to ignore for purposes of showing pro-competitive benefit, right? That logically is incredibly inconsistent. I think the supply elasticity points, the first half of my point two, is a really interesting one because JetBlue cites to a case Ball Memorial. And Ball Memorial was a case about insurance companies in Indiana. And the rule of law that came out of that case that is related to relevant markets was even where you have a geography where the demand is geographically constrained,

it may be appropriate to look at a broader geographic lens, even a national lens, when the supply is mobile and can go meet that demand. And so the issue was, you know, these other insurance companies were actually able to, you know, get Indiana licensure and provide insurance coverage to the Indiana residents, even though the Indiana residents had to obtain insurance from Indiana providers. And that is, you know, the parallels between that and this case, I think, are profound because you have the exact same situation where if there is a market, where it is economically advantageous for an airline to enter, that airline will enter. I mean, there's somebody will go fill that void left by, you know,

perhaps a lack of ULCC pricing. I mean, everybody knows at this point that ULCC demand is out there. I mean, it's not just spirit and allegiance and frontier anymore. I mean, United. We are, we are testimony from a United exec saying that, you know, United has ULCC capacity and intends to grow that. And so somebody would go fill that and go travel to meet that demand. So even though the demand might be inelastic from a geographical standpoint, it's actually highly elastic from a substitution standpoint, which thereby allows other suppliers to freely enter that market. You know, one point I got a little frustrated that never got made. As you said, these are highly mobile markets. And the government, they started arguing like, hey, you know, plane shortages and stuff, despite all the planes that are coming into market everything.

But one point I wanted to make was if these markets get profitable enough, like you're going to have Indian airline, Indian airline or Indian Airway or whatever they thought, they're either going to start flying domestic routes in the U.S. or, you know, Frontier will be profitable enough for them to buy airplanes from Indian Airlines, fly them over here, and then start flying them, right? Like, obviously, I'm using Indian Airlines as the Apple of a foreign airline. But, like, these planes are so mobile. It's not just the domestic market. Like, you can start buying up unprofitable for people and getting their planes over here. It's just, it's so mobile. It strikes me. And I think the corollary to that is routes that become un-economical are routes that the airlines will leave anyway.

So, you know, and we saw that, you know, when you look at and we should talk about that, the 51 presumptive route. Yeah, so, you know, the DOJ says, hey, there's these 50, they say really there's 183. They started with 300, 300 presumptive markets. Yeah, now they're like, it's really 183 and like, let's walk through these one by, no, they don't, you and are can you just quickly define what these 51 presumptive markets are and how they're relevant to the case before we start narrowing them down? Yeah, the 51 presumptive markets are, I call them like true overlaps, right?

It's where JetBlue and Spirit currently compete head-to-head and they're direct leads, as opposed to, you know, combining different legs where you may or may not be uniquely competitive. And it's not just 51 where they compete, but it's 51 where they compete with enough market share that the DOJ is arguing like, hey, you guys, you know, JetBlue, you have 40% of Las Vegas New York, Spirit, you have 30% of Las Vegas, New York. Together you have 70%. That's a monopoly. Sherman. The Chervinax, Claydack says, if you go over 50%, we can stop a monopoly. That's one route, one local market, one monopoly. We can block this merger. Thank you very much. Yeah, that's perfect. And I guess, you know, to.

refer back to our original Spirit podcast, you know, the way they determine that market concentration or problematic market concentration is typically this HHS index. So it took a sum of the squares of market share. And so they say, hey, there's 51 routes where you guys directly compete and where your combined entity becomes problematic from a market share perspective under the HHI index. Well, going back to the point we just mentioned a second ago in terms of the, you know, dynamic nature of the industry and the fact that airlines leave uneconomical route, well, of that 51, Spirit has already left so many that now, now it's like 35, right? So it's like, it's like 16 routes, I guess. They, they, I thought it was 17,

but I guess 16. So there's 16 routes that they have left simply by way of, you know, their own economic interests. They did that, you know, since the complaint was filed, They just said, look, our airline is not doing well. We have to rearrange the planes. We have to put them somewhere else. We can make more money over here. Whatever. And those are things that importantly any airline would do, right? All these airlines are, you know, acting the same way in their own economic interests. And they will fly the routes that are most advantageous to them. So now you get 35 routes that are left. And of those 35 routes, 27 are the subject of divestitures. So, you know, we talked in our first podcast that, you know, they divested in the northeast and they divested it in Fort Lauderdale. And so now, you know, one of these nodes in this origin destination pair, importantly, the constrained node, the node that's really hard to get a gate in a slot, that's open. So now if, you know, Frontier or Allegiant wanted to fly, you know, LaGuardia to Kansas City, well, you know, sure, maybe Spirit didn't divest Kansas City, but you don't need to divest Kansas City.

I mean, Frontier, you know, if they can get LaGuardia, they can fly LaGuardia to Kansas City if it's in their economic interest. And presumably if Spirit is still flying that route, it's probably in their economic interest. So there's an indication there that they would likely fly that same route. So now we're down to eight routes that are left among those 51 presumptive routes. And there's only two origins or there's only two nodes among those eight routes left. Six of them are in Orlando, and two are in San Juan. Importantly, those are not gate-constrained airports. Orlando has two airports.

San Juan has undergone some expansion, I believe, and has open gates and slots. And so JetBlue says, all you can point to, really, is these eight origin destination routes that have Orlando or San Juan as a node. And they're not constraint. So if it's economically advantageous for Frontier, Allegiant, you know, Avello, whoever to do it, they can do it. They're free to enter that market as they wish. And if there's a ULCC lack of capacity, if there's suddenly a dearth of ULCC seats, then they would be economically incentivized to go do so if they can make money. the other thing that JetBlue says there is to say, hey, Orlando, Allegiant has said that's a growth marker for them, I believe. That's one ULCC and San Juan Frontier. I said that's a growth market for them. So it's not just that these are open markets. It's that ULCCs are trying for them. Let me provide. So one thing. So the math there was 51 to 35, 16 of those routes have been just exited naturally by spirit. Then 35 to 8. That's the big jump. And the way they make that jump is JetBlue says, we've agreed to divest these 27 routes. And one thing the government comes out really hard against some of their arguments to say, hey, judge, there's these divestures, right? These debaestures of routes that, you know, it seems pretty clear spirit than JetBlue are saying,

hey, these could be an antitrust problem. That's why we're divesting them. And the government is extremely skeptical of these debatersers, right? They say, hey, judge, you don't know for sure they're going to happen. We had testimony from, I believe it was the Fort Lauderdale airport manager who said, hey, JetBlue can say they're going to divest that, but we control these gates. we approve the divestures or not, so who knows if they're going to divest them? And the government also says, hey, you know, let's say Jeff Blue is divesting LaGuardia to Fort Lauderdale,

to stick with that example. They can divest the assets to Fort Lauderdale. They can divest those gates, but there's no guarantee that Frontier is going to fly Fort Lauderdale to New York. So who knows, that will actually lead into your point three. But I just want to ask you about the government's skepticism of divestures overall. We can talk about the replacing one-to-one offset in later. Yeah, I think it's a really insincere argument. I mean, I don't blame them for trying, but gosh, where to begin?

I think so we have historical, well, I don't think, we have historical precedent that says, you know, where there are issues of divestiture for airports, they have historically like appointed a trustee who will essentially manage the sale of these assets. And importantly, you know, it's the the airports themselves. are are incentivized to distribute these assets in a way that benefits their communities. And so if it is beneficial to their community, if they have a lot of like leisure travelers who fly spirit and go to these locations like San Juan, perhaps they're not going to, you know, New York for business or whatever, then the airport is incentivized to give those slots to the airlines that will fly them. And we've seen this before, where we didn't know exactly where the gates and slots would go. It was overseen by a trustee.

I forget which case. It might have been the United merger. I think it was AMR. Let me just say, it's so interesting to me that the government's saying, hey, the airport authority has the ultimate authority to divest these gates. So they might not go to ULCC's. And Jeff Blu makes this point. They say, hey, if the airport authorities have it,

like they will debest it to whoever they think is the best person for their community. So it seems really disingenuous and just skeptical of all people. It's like, it must be spirit flying here. You know, if the airport authority chose to divest it to Southwest, I'm sure it's because they thought Southwest was actually the best for like serving their local community needs. It just, it seems very crazy to me that you'd be like, airport authorities might not approve this. Yeah. And I mean, this goes back to the standard that they lay out.

I mean, they say, you know, all this needs to be replaced one for one. And they just don't have any support. That's good. Yeah, they don't, they don't have any support for that. But I will, I guess, add to your additional point of like, you know, the DOJ also says, well, they're not going to, they're not guaranteed to fly the same routes. Not only is that, I think, a misreading of the law, but, but I think it's, you know, I said a little bit ago, if it's economically advantageous for Spirit to currently fly that route, say Fort Lauderdale to Kansas City, then you could assume that it's probably economically advantageous for Frontier to fly that route. and that's going to be a logical route for them to enter. Now, the DOJ would say, oh, there's certain aspects of like the Allegiance business model

where they say they don't want to compete. And there's certain aspects, you know, and maybe a velo just doesn't have the plaints or whatever. But I think even those are betrayed, those points are betrayed by the testimony from Frontiers, CEO Barry Biffle alone. I mean, it's betrayed by testimony throughout the case, but Barry Biffle in particular, who said, Look, as soon as these routes are divested, there's going to be a feeding frenzy. We're going to jump on these things and, you know, tear it apart. I can replace all of these routes inside of five years.

There was a ton of testimony from him in particular about how he would be incentivized and ULCC in general would be incentivized to go fly the routes that spear fly. So I think it is a misreading of the law. I think it is a misunderstanding of the reality. And the simple truth is that if an airline, if these routes get divested or the locations, the destinations get divested, and Frontier is not flying that same route, it's probably because Spirit wouldn't have been flying that route anyway. It's a route that they would have likely exited. So I think it's an incredibly insincere arguments on the DOJ's part. There's just one thing I want to come in here. So Jeff Blue argues a lot about, hey, the government has frozen these markets at a single point in time. to choose their harm. And you can't do that. And part of the reason they see that is because, hey, you know, we exited 16 markets. This is extremely dynamic industry. And the government had

a response that said, yeah, look, we understand, but we had to freeze them at a point in time or else, how else are we going to evaluate harm? And I was like, that's exactly the point. If you freeze them at a point in time and it's always changing, like that's the point of mobile markets. Let's see, I think we hit your one for one offset, which was your third point. So let me just go to expert witnesses, right? I'm not going to leave. I'm going to try not to leave the witness here, but there's a lot in both sides' testimony about the expert witnesses. Expert witnesses are hugely important in an antitrust trial. So I just want to ask you, why are expert witnesses so important for the late person, 30 seconds of that?

And then B, maybe you could talk about how you think Jeff Lewin, the government, handled the expert witnesses here. Yeah, expert witnesses in many ways, I was going to say put a bow on the case, but I think they really make the case. They don't just put a bow on it. expert witnesses don't testify to facts. That's what fact witnesses are for. It's in the name. But what expert witnesses do is they synthesize those facts and then they rely on those facts in conjunction with their expertise in whatever area. And they will really, you know, their testimony goes to the heart of a case. It goes to, you know, in this case, the harm is their arm at what scale, et cetera. So, you know, all of the facts. witness testimony up until then is really just to kind of get these tidbits in so that the expert can then come in and say, yes, I relied on X, Y, and Z, and this is the ultimate harm. This should be the ultimate outcome. So that's kind of why they're important. And, you know, I was, when I left the closing arguments, I think the expert witness point is what made me most concerned or

most skeptical of JetBlue's case. I had heard through, you know, multiple people who were sitting in the courtroom that the expert witnesses for the DOJ had not really carried the burden for the DOJ. And during closings, I expected to hear JetBlue hammering on those deficiencies quite a bit more. And they really did it. I mean, they pointed out a few issues, but they didn't harp on it in the way that I thought they might. And it turns out, I think that may have been a bit of a strategic decision. I think they may have withheld some of the punches there so as to not

tip off the DOJ into bolstering that part of their post-trial briefing. And I think it was ultimately fairly effective because they do talk about the deficiencies in JetBlue's post-trial briefing, and they seem quite damp.

And I don't think, correct me from wrong, like the reason, as you said, the reason you wouldn't tip the government off in the post closing trial arguments is because then the government is going to spend a lot of time in their closing briefs trying to shore up, right? They know, so they're researching. They're trying to shore it up, tried to defend any mistakes. If you don't hit on any, they might not know they're coming.

And, I mean, correct me if I'm wrong, I don't think the government, like, tries to bolster or defend their expert witnesses once in their closing arguments. And Jeff Blue hits the government expert witnesses really aren't. Am I misremembering that? No, I think that's right. I mean, I think the reason I expected to see more of an attack was because of the timeline of a potential decision, right? I mean, we heard that Judge Young had already started working on his opinion in the middle of the case. And so, you know, in my mind, I'm going,

geez, they need to get this in front of Judge Young. They need to hammer this home. And, you know, they shouldn't be saving this for a rainy day. They need to get this in front of them now. Ultimately, you know, I think he's got plenty of time to sit on the briefing and evaluate these deficiencies. So it seems like it was, you know, it's probably a pretty effective strategy. So let's talk about the deficiencies that JetBlue finds with the government witnesses. Kind of what are they? Why do you think they're, again, I'm leading the witnesses. Why do you think they're so damning?

Yeah, I mean, JetBlue talks about how they bifurcate the witnesses so that neither one of them had to face cross-examination on particular issues. I think, though, the most damning aspect of the expert testimony is the data that they relied upon. It's national data. And I think, you know, Dr. G's model in particular was, I don't even know, I mean, looking through the findings of fact for JetBlue, it's like, it's incredible. I mean, they point out the ways in which his model can go askew. And basically, you know, he says that like with a couple of seats fewer, a couple fewer seats on a spear plane in certain markets. I think it was like Las Vegas. You know, you'd see like, 30% increases in price, even though both JetBlue and Spirit had like a combined market share of, I don't know, a couple percent or even less. So, you know, it's just the models end up being so ridiculous and they're predicated upon, you know, exclusively national data, which the DOJ says that you shouldn't be looking at for the alternative purposes, the proving of the pro-competitive

benefits. So to me, those are really fatal deficiencies in the DOJ's case. This is what Jeff Blue said, right? Like, hey, even Dr. G testifies, he's like, look, I'm using the national data to assess vocal level harm. And then when they point out errors in his local level model, he says, well, really, the data works better on the national level. And this is what Jeff Blue saying, hey, the government's trying to have it both way. They're trying to prove local harm, but use national data while ignoring national benefits. And by the way, seen it's not a national market. Like, you can't have it every which way. There's one more like really interesting thing where they say, hey, in the Los Angeles market, if you toy with the

model a little bit, you can generate a trillion dollars worth of consumer harm, which I think the US GDP is like 12 trillion dollars or something. I can't remember off the top of my head. It's like if you can generate a trillion dollars worth, I know LAX is big, but I didn't know it was quite that big, you know? What was it better if it was the Burbank airport? So, yeah, look, I think we've, I think people could hear it. You and I, we did a podcast, if I'm remembering our podcast versus our just offline chats correctly, we did a podcast before the trial started where we said, hey, we think JetBlue's winning. I don't think we've done another spirit update between you and I on a podcast, but people could hear the NBC podcast podcast, podcast hashtag report. He was probably 50, 50 for JetBlue.

Close your trial briefs, he's probably a little bit more in favor of Jeff Blue. People can probably hear you and I are very much leaning towards Jeff Blue. We'll save our percentages for the end. But I do want to get you with some concerns I had because it's not like the government. made no points. They did make some points. So I want to get you with some concerns and you can tell me if that's a big area for your, if that's a big area of concern or if that's robust. The

first is the government does hit on a lot, right? And I hear bears a lot, we'll say hot docks. Originally the hot docs were all the hot docs from Spirit when they were trying not to get bought by Jepp Blue. I think those have largely gone to the side. They're not entirely. So ignore those. But there are hot dots from JetBlue in, when they were trying to buy Spirit, their internal modeling had

a 30% increase in fare, right? And this has come out 100 different times. But the government uses this a lot in the trial. And I think what they're saying is price increase. That is the definition of consumer harm price increase. And JetBlue was modeling a price increase when they were looking at buying spirit. They hit on it multiple times. So how do you think about that? A direct quote from the government is unabated 30% fair increases. Yeah, I think JetBlue did a nice job of deflecting the blow there. And I kind of said this, you know, in our original podcast that I didn't think hot docs on either side were going to be particularly problematic for either party just because

of the nature of a bench trial and who was presiding over the case. You know, JetBlue says that those numbers were for purposes of, you know, merger modeling and it's not a business plan, I think is the quote. It's not a business plan. And certainly the economics of the business have changed quite a bit since those initial merger docks were created. I think, you know, proving that an acquisition could possibly be accretive or, you know, could result in a scale that makes the business more relevant. I don't think that is, in other words, I believe JetBlue that I think it's tough to say that that is an exact business plan and that you're going to see 30% importantly, you're going to see 30% in every route, including exactly these 51 origin destination

pairs. I mean, again, you're talking about looking at macro level data to bolster specific origin destination harm that's being alleged. Two questions there. The 30%, as you said, it's the, what they keep party on is a 30% increase in severe prices in a merger model. Is there precedent either way, whether ignoring merger model as just financial modeling, not an actual business plan, not admitting price increases, or using a merger model as an evidence of plans to permanently increase pricing in market power. Is there any evidence or precedent on using that merger model, either which way? It's a good question. I don't know is the answer. I, you know, I suspect even if there was, you know, the fact that the economics of the business have changed

so drastically in the last, you know, 12 months or since the complaint was filed at least, I suspect that, you know, whatever language might be included in that hypothetical case law would probably be rendered fairly inapposite with the fact in the instant case. Let me ask you another question here. So the other thing JetBlue would say, and JetBlue's experts testified to this, they would say, hey, do prices go up on JetBlue flights versus Spirit flights? Maybe. But a large part of that is because people would prefer JetBlue, right? They say, there's a quote, I'm going to give you a quote, more fundamentally acquiring assets and improving them to the benefits of consumer, it's not in itself a violation of Section 7,

even if the new business model leads to favors conventionally higher with the higher product quality, right? So they're saying, hey, if our price to go up a little because we're offering a better products and people are choosing pay for it, great, not a problem. There's precedent there. The government has a counselor's at, and this is like paragraph 101, so they don't really need with it. But it did strike me as interesting. And this was one of the words that. They say, hey, it is, there is precedent. If you acquire someone and you can make people pay more for a better quality product, there was precedent that says that is not an efficiency. That's an argument for market power and a murder should be rejected on that. Kind of how do you think about

those two conflicting views? And I didn't pull the president, both of them were pointing to precedent that supported both those opinions. Yeah, I think that's a bit of a mischaracterization on the DOJ's part. I mean, look, at the end of the day, antitrust law is about preventing consolidation of power, not strictly market share. And it's about, preventing consolidation of power, which can be used to, you know, when it's multiple actors, they can be used to prevent those multiple actors from acting in their own economic self-interest and using that power in an abusive way. And so I can't remember that exact case name, but I think there was a bit more of, I'm going to call it, abuse at issue

versus simply a selection of a different business model, which we have here. And I think that quote from JetBlue is particularly compelling. I mean, we've talked, look, if a private equity firm came in and bought spirit and, you know, strict the planes down, sold them for parts, I don't think you'd see the DOJ bat an eye. And that is, that is problematic, right? I mean, that is a business model choice that a private equity firm could make unfettered. The, you know, the DOJ would not step in. And yet somehow, because it's JetBlue making that business model choice, that has become problematic. And I think the real crux of all of it is that even if you assume that that is anti-competitive to a degree that there is harm, you have testimony in the record from ULCCs, and not just any ULCCs, you have testimony from the largest, you know, the next largest ULCC. CC, the CEO, his testimony saying, we're going to come in and we're going to replace all these

routes. So even if there is harm, ultimately, you know, the timing, the efficacy, you know, all it's the likelihood that harm persists in an anti-competitive way is is so low in my mind, particularly when you view that, you know, look, you have to, you have to allege this harm on a multi-year scale. JetBlue has said they're not going to start integrating Spirit and JetBlue planes for at least 12 months, maybe 18 months. Frontiers CEO, Barry Biffle said, I can replace all these flights inside of five years. So what you're left with is a period of three and a half, maybe four years tops where you might have harm to consumers if you assume that all of those other things are true, that the expert testimony is valid and it relies on correct factual evidence, etc., etc. And just to add to your point, that's assuming that you have Frontier has to be the person to replace every single sphere route. Correct, yeah.

So, like, yeah, if the government believes that Frontier, like, you need, the only way to replace Spirit is to have the largest ULCC player in America replace every single one of their flights with the ULCC. Yes, Frontier says Spider will take them. He said seven, but he could do it as in as fast as five, right? So yes, that's true. That would take five years. I think what we're hoping for is that other ULCC. and other people will step in a little sooner than that. So let me ask, that's mobility of market. We're coming back to the ball precedent that you mentioned. And I think the government would come

back at you with two points. Number one, paragraph 23, so obviously that's very high up in their findings aback. They say, hey, as an initial matter, Supreme Court president prohibits the justification of fair ikes and ozone consumers flying in a particular market by pointing to benefits accruing to consumers at other markets, right? So what that is saying is, hey, if prices go up on some of these local markets, the 51 presumptive markets we've talked about. But that's because, but there's national benefits overall that are encouraging things. They're saying you cannot consider those kind of the benefits that way the arms. That's number one. And the number two, I think he was about RF32. They have a footnote that says, hey, by the way, on the mobility of

assets, the Jeff Blue's own expert, Dr. Gill, he has testified in a prior trial that he does not believe in the mobile expert's defense. Right. So I think when you could find those two, you could see a way that the government's trying to reject Jack Loo's kind of like beating frenzy, frontier mobile assets argument. I would just, I threw a lot out to you. I did some quotes. I did what the government did. I blended quotes and anecdotes. But what would you say to that government defense? Yeah, I might not have you repeat one of these questions. I would just say, you know me, just throwing a thousand questions out of it. The first part, sorry, I was taking notes while you were saying that. So the first part, okay, yes, there is Supreme Court precedent

that says you can't essentially weigh the markets against each other. However, even if you look within a single origin destination pair, you will see benefits there. Now, it's benefits in terms of better quality, et cetera, that the DOJ will say some people simply don't want, but you can argue that there are benefits on a local origin destination level and you don't have to look nationally. I think the national discussion, the quality of national benefit, if you will, that goes more to the issue of the DOJ's inconsistency than it does the illegal precedent. You know, the DOJ, as we've discussed, used national data to allege the harm. And so it's very difficult logically or, you know, to be consistent logically and say that it is now irrelevant to use national data.

data to show potential benefit. And certainly we can point back to the Ball Memorial case, which would say that even if there is harm, even if you assume that you're only looking at local levels and any pro-competitive benefits do not outweigh the anti-competitive harm, you still have the issue of a dynamic industry that can geographically move to meet the demand that exists there, the void that is left by a spirit departure. So I think there are just multiple levers that you can pull in order that kind of, you know, dismantle the DOJ's case. You did a great job saving me and answering all of the thousand questions I just asked. I forgot your second part of the question. I'm sorry. No, no, I think you hit it.

So one other question I have here. And again, I'm biased. I'm trying to check my bias. But when I read these cases, I'm just like, I think JetBlue. got the best of it. And people who've listened to these podcasts know why, and I'll talk about wine a little bit. But one thing that jumps out of me is the government is basically coming out and saying, hey, every person who's worked in this industry, every industry insider, you've heard for multiple competitive CEOs, whether it's United CEO saying we're eager to expand, we're ordering to expand our basic economy, whether it's frontier and allegiance CEOs to the two, I think the number two and three ULC players, too are saying, hey, we're eager to, if Spirit leaves these markets,

and spirits to exit the ULC beating frenzy, we're going to vacuum this market. The government is basically saying ignore every industry insider and rely on our expert models who, you know, I think JetBlue has done a very credible job of showing our extremely flawed, rely on our expert models and this presumptive farm, even though no one in the industry can point to it, to block this murder. Like, that just strikes me as, it strikes me as tough. Having read, I don't know, I've probably read 20 judge rulings. You've probably read 2,000, But certainly the judge to say, ignore everything an industry is saying and let's rule for the God. What you're highlighting is really that the DOJ's experts, the factual underpinnings or alleged factual underpinnings of their conclusions are themselves conclusory.

They can throw a label on something and say that this is a high barrier to entry market. but you have testimony from disinterested third parties, at least disinterested as far as this immediate case is concerned, saying, yes, I will swoop in and I will replace these. I will put the planes where they need to go and we can do it without decreasing services to our existing routes. We're going to, you know, if we can't do it organically, we'll acquire planes inorganically. We'll lease them instead of buying them. We'll do whatever that we need to do.

to get in there and replace these routes. So I just think when you actually, you know, strip away the conclusions, strip away, you know, what the experts label or how they characterize the markets and actually look at the evidence that underpins those conclusions, you see that there is an inordinate amount of evidence in support of JetBlue's position and very, very limited evidence in support of the DOJ's position. And most importantly, they explicitly contradict that inordinate amount of evidence in multiple places. So it sort of requires Judge Young to not just believe the DOJ, but also to reject the many instances of what I think is likely very credible testimony from fact witnesses who have no reason to get up there.

and lie or say anything that, you know, wouldn't be true or extend the truth in any way. I mean, these, these are industry witnesses that are all acting in their own self-interest. And, and I think it would be, excuse me, I think it would be crazy for Judge Young to, to reject that. Yeah, Blake, I'm with you. You know, another thing I would just mention the, it's the Jewish Tolacom case, but T-Mobile Sprint, T-Mobile merging with Sprint, the case. The case. is in early 2020, that was a four to three. It's cited often, and I think I personally would have rejected that merger. I would have, I would have been wrong, but I think I would have been wrong for the right reasons. That makes sense. Because the judge approved it, I think in part because

he thought Dish was going to replace Sprint as the fourth player. And Dish, I've definitely failed at that, but Charter and Comcast came in with their NB&O and have really revolutionized the wireless market, anti-Mobilism. I mean, that's neither here nor there. I do love telecom, though. What I I'm saying is there's a lot of precedent for this. I think the Deutsche Telecom case, which was very recent, where the government was for this four to three, that was actually states tried to sue to block that. I think the government's going to have a lot of trouble with that particular precedent case in some of the rulings. And I think the defendants here do a really nice job of splitting that ruling and several other rulings that helped them. But that ruling, and look,

it helps when I think they've got the better case. But I thought that precedent means very. Look, there are so many areas where the DOJ has these like logical inconsistencies. And, you know, it's not just about the facts, it's also about kind of the way they seem to characterize and understand antitrust law itself. I mean, they say that JetBlue Spirit becoming one of the major combined airlines will increase likelihood of collusion. And that's not true. That's not what antitrust precedent would say. It says, you know, if you increase the number of competitors in a band of the market, if you go from four to five or two to three or six to seven, whatever, you're actually decreasing the likelihood that there is collusion between the parties because

there's more likelihood of independent economic self-interest winning out and it's it's just simply more difficult to coordinate and there's all you know there's a bunch of reasons why logically that doesn't quite make sense and they point to things like the ATPCO codes and you know price flashing and they make a big deal out of this and it's like that just like where are you going with that. Like, we already established there are like a couple instances maybe, and JetBlue says that's not a practice they employ. And, you know, there are ways to deal with that as far as like injunctions. You know, it's like you can, you can deal with that with a Sherman Act case later on if they're, you know, behaving in an anti-competitive way. But that doesn't strike me as a reason to

prevent a merger under the Clayton Act. That seems so logically inconsistent to me. It's like mind bog. Here's a, so I think I've mentioned it on one of the NBC podcast. I was shocked by how much the government was asking this in the trial. And I was wondering why. And I mean, it's really high up in there. You leave with your best arguments. And it is really high up in their first trial briefs that they are that they think it should be blocked because of this flashing price coordination issue. And I was very surprised by this. And I took an ask you a question here. One person was they would ask, you know, they asked loose pricing person. They asked for it. They would ask industry insiders. And all of them would say, no, flashing is not an issue. There's no flashing. So the government's coming out here. And they're trying to allege likelihood of flashing collusion, but they've got no, they have no witness. They have no expert witness testifying to collusion, unless I'm misremembering. And they've got no witness testified here. So it's a theory of AR without any. It's peccas and police speculative.

It is, and it's funny because they criticize Mr. Chef, who is the, who is JetBlue's expert. And he testified saying, oh, you know, the combined entity can actually be more efficient. And it'll increase the seats because, you know, we can run. the planes, red eyes, whatever. And they say, oh, Mr. Chef's testimony is so speculative. And then they dedicate this entire section to the most speculative aspect of the entire case. It makes no sense from, from as you point out, the testimony that was present in the case. It makes no sense logically. It makes no sense. Like, there's, there's just no world where, where that is relevant to this merger. And they dedicate quite a bit of time to it.

So, again, I would encourage, if you are. a bear, and I know, because I see the viewership stats, I know that these are getting watched very widely in the virtual arbitrage community. If you are a bear, reach out to me. I'd love to talk to you. Lionel would love to talk to you. Well, I love to have open conversations. I'm not criticizing anyway, but I would love to talk to bears in this case. So please reach out. Hit me on Twitter DMs. You can find it. The four bear cases Iifer. Number one, Jeff Lou is going to walk. M-A-E claim, DOT craziness. I don't want to address that here. We're talking about the trial. We can go there. We've gone there in the past. We're not going to

to talk about those things here. That's number one and two. MAs one, WOC, DOT plus walk is number two. Not going to go there. Number three, before the trial especially, I would hear, hey, what do you have here? You have hot docs that say JetBlue's going to raise the price. You have hot docs of spirit saying this is an anti-dress problem, and you have deference to the government. Combined those three, and boom, you've got to win. You and I heard it. I know we did calls with DOJ former together. We heard it from a lot of bears. That was number three. I think you and I have already talked about why. We already talked about the hot docs didn't matter. We already talked, not that they don't matter. How they were dismissed. We talked about the pricing issues. I don't think we need to

address that. So I want to address number four. The last fair point I've heard is, hey, DOJ won on the relevant markets. The relevant markets is route by route, origin destination. There's clearly overlap on the relevant markets, and they didn't digest everything. Plus, there's some divesture uncertainty. I think you and I probably already addressed that. But when you throw all that together, that's the path for the judge to block it, right? DoJ won on RELS, there's overlap, there's some markets where it's going to be a market power, whatever, and the investors on certain, boom, block. What would you say to that bail point? Oh, my gosh, so many thoughts.

And I think a lot of it kind of touches on things that we've discussed. But, you know, this is a common theme, at least on Twitter and the emails that I get. You know, people say, oh, it's all about the relevant market. If the DOJ wins the relevant market, case closed. And the DOJ, in fact, said almost exactly that in closings, and JetBlue threw it in a footnote and called it hyperbole. So if you want to open up the JetBlue briefing and Control F hyperbole, you'll see it. That's what I'm doing. I don't think it matters.

And it doesn't matter for a lot of the reasons that we just touched on. So even if you assume that those 51 markets are the relevant markets, you can get down to at least eight that are. I don't think it's still problematic, but, you know, you could allege that they are problematic. Let's assume, though, that you still have all 51, and Judge Young says, you know what, the divestitures don't count because you can't guarantee that the gates are going to Frontier and Allegiance, and you can't guarantee Frontier and Allegiant are going to fly the same routes, even though we've already talked about how there is precedent here historically to assign an overseer of the domesticature process and that it's in the airport's best interest to give the to other ULCCs, if that's what the community demands. And even though, you know, spirit leading a route, you know, they're already flying most economical route. So presumably the new entrant would be incentivized to fly that same route.

Even if you assume all of that, you still just have a failure of the burden of proof on the DOJ's point. And it really just comes down to the lack of factual evidence that we talked about, the lack of fact witness testimony saying that, you know, these new entrants won't replace these routes and won't, you know, feast on the dead carcass of spirits, you know, void. And, you know, the DOJ experts, as we noted, relied on national data. So it betrays their own arguments that local lenses are the lenses through which you need to view this. I mean, it's just, it's ridiculous to, as we said, in one breath say that, you know, you need to use national data to prove the arm and then in the next, that you can't use national data to prove the pro-competitive effect.

It's ridiculous and it's evidenced by how ridiculous Dr. G's economic model is that comes to those conclusions that we highlighted. I mean, it took the JetBlue attorneys just a little bit of tinkering and they came to these absolutely patently ridiculous results just by moving around out a couple numbers. And so I think even if you give the DOJ the benefit of the Dow on all of those points, I still just don't think they've carried their burden of proof. And yes, it is just a preponderance of the evidence. It is more likely than not, but it's more likely than not a likelihood of substantial harm. Substantial harm. And they try and strip away that substantial. But it's substantial harm. And I think that's what the DOJ would like everyone to forget and what I think

some of the bears maybe didn't quite catch. And now a quick break to remind you that this episode is brought to you exclusively by AlphaSense, the AI platform behind the world's biggest investment decisions. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit Alpha-sense.com slash FS today to beat FOMO and move faster than the market. That's alpha dash sense.com slash FS. We mentioned it at the top, but if you go read the governments,

I believe it's the, I can remember it's finding faster post-coly short, but it's really funny because from one paragraph to the next, they will switch from like the emphasis on substantial. When it's on them, they'll try to emphasize every word but substantial. And then when it's on the defendants, they'll try to emphasize substantial as hard as they can.

And, you know, it's just adding it both ways up. let's see. Again, I don't want to talk M.A. I don't want to talk DOT. If it won't we get a ruling, we'll have those conversations. I think you and I have addressed them in prior podcasts. I know we've addressed them in prior write-ups. People should go sign up for Linal's substack. I'll just throw that pitch in there. Let's quickly talk timing, because everybody wants to talk timing here. Everyone in the merger arbitrage community. Everyone wants to talk timing. I know why everyone wants to talk timing. We won't mention the specific reason, but everyone knows why it was time. December 13th, late at night, all the filing drop, and now we could get a ruling. I mean, the ruling could come as you and I are taught, but we could get a ruling at any time. When do you think we would get a ruling? Well, I think some people still believe that Judge Young is going to get it up by the end of the year. And I wouldn't put it past him, you know, again, he's senior status, right? So he doesn't have a full docket, which means that he theoretically has some time,

although it is the holiday. And I think the last time he committed to a, you know, before end of year ruling was before, at least before he delayed it a second time. It might have been before he delayed it the first time as well. So I think end of year is aggressive. I wouldn't put it past him. It's certainly not a zero probability. But I think you're probably looking at, you know, first, maybe more likely second week of January.

I think that's fairly reasonable. Well, the one thing, I mean, look, I left the courthouse and I can talk. I mean, I got rid of some January call options because when I... You said the magic word, so now we've got to just remember. Options, that's why we're talking timing. Yeah, yeah. Options are extremely, extremely risky. Please, again, we said at the top of the financial advisor, but consult like five financial

advisors and a freeze before you look at financial advisors. That's kind of amazing. Certainly not an endorsement. Yeah, apologies for saying the magic word. certainly not an endorsement of concentrating. I will just say I had evaluated the likelihood of a post mid-January close and thought that it was a lower likelihood because neither side really answered Judge Young's questions directly when he was talking about what else might need to be done as far as divestitures or what would be a reasonably narrow, narrowly crafted injunction that, either side would accept. And both sides were fairly non-responsive in answering. And so I left thinking, man, there is a good likelihood that we see a remedies hearing and additional briefing just

on remedies. I don't think it's necessary. I think Judge Young has what he needs in his toolkit to be able to report. If he called a remedy theory, right? I think he would call that before issuing his opinion because he would want to craft the remedies hearing into his opinion. But would you if I led the witness, would you agree with me if I said if he calls remedies hearing? It's because he's getting ready to approve this merger with remedies. So he wants to know specifically what he wants, or is there still a chance here's a remedy hearing? He doesn't like what he hears and he just says, reject it. There's definitely still a chance that he rejects it. I mean, the point would be to ascertain the reasonableness of those remedies. And I think the DOJ would continue to assert

that no remedy is reasonable other than a permanent injunction. I think it would be very hard to only take that stance. They might, you know, kind of argue in the alternative and put forth maybe some ridiculous amounts of divestitures that may or may not lead to, you know, an MAE for the combined density or whatever. I don't think it would be a good faith, you know, assertion of what divestitures should be. The DOJ would, you know, probably offer up San Juan and Orlando, as they kind of did in their briefing and maybe a couple more origins and destinations.

as well. I mean, they could offer up planes as well, right? Plains haven't been on the table, and they could offer up, offer a plane. So there's definitely still a chance that it would not go in JetBlue's favor. But I do think that if we do see a remedies hearing, it probably puts a thumb on the scale, you know, even more towards the side of JetBlue. Last thing investors, you know, one thing that struck me, I've said this before. This judge, I've got huge respect for him just from what I've seen and heard through this trial. I think he's done a great job.

And I've done diligence, talk to people who've been in front of him. He is not an antitrust judge. There aren't really antitrust judges out there except for maybe Deller, I don't know. But this is his first antitrust case as far as I'm aware. He asked a lot of questions on what he could craft his powers and stuff. And I personally think the government came out and said, hey, we reject everything. You have to block this merger. I thought JetBlue did a great job of saying, we think this merger.

stands on its own with the divestures, but here's all the precedent cases and all the power you have to crack additional remedies if you do. And they noted, like, hey, the government's worried about debesture. You can appoint a divesture monitor who will oversee the divesture, and we've committed not to operate these assets anymore. So you can guarantee de vestures. You can do it. I don't know. I just thought he did a great job of laying it all out. And I think the judge reads that and he's going to understand the flexibility. So again, kind of leave. Yeah, I mean, I think, you know, Judge Young has had a couple antitrust cases, but one, he granted a motion to dismiss, so it really, you know, there wasn't a lot out of that. Although JetBlue did actually both parties cited that case, interestingly enough. I think it was like 10x genomics is the thing. That wasn't, yeah. Yeah. What was I going to say even? I think he was, I think he was, he understood, he may not be a quote, antitrust judge, not that there is one, but, you know, he may not be a, a expert in antitrust, but I think he absolutely understands his powers and understands how

antitrust law works. I think he was kind of kicking the tires of each party's arguments and seeing where they might give a little bit, where they appear more reasonable, you know, what what is the veracity of the claims they're bringing and, you know, how willing might they be to, you know, craft that, that remedy with him if it's needed. But yeah, I think he was, I think he was more kicking the tires than truly seeking an answer as far as, you know, what his powers are here. Here's my theories on, I mean, if I, if you just want to random throw out. So next week, we're taping this December 15th. I'm going to try and get up December 17, 13th. December 18th, I think that week would be the most likely if we're going to get a ruling this year. But I don't

think it's super likely. I'd probably throw it at 10% chance. I'd throw it in the week of the 25th. Look, this is an 82 year old judge. Do I think 25th Christmas is a Monday? 29th effectively serves as New Year's Eve in terms of holidays and stuff is Friday? Do I think he's going to publish a ruling that involved a thousand pages of review, a multi-page, like something that's going to be quoted for your scum? Do I think he's going to publish it in between Christmas and New years? The answer is absolutely not. So I would put it at like one or two percent. Yeah. A week after that, week of January 1st, January 1st, Sunday. that's New Year's Day.

I suspect he's not going to publish it that short week either. So I've got the week of January circled as when I kind of think the ruling is most likely to happen. And again, it's not scientific, but I think that's reasonable. And you bring up one good ancillary point, which is here's a judge who, I don't think he's so selfish that he like only cares about his legacy, but he's old enough that you're probably, you know, you have a propensity to think about legacy. when you're when you're that age. And he has the ability to craft an opinion that that might be precedential for years to come, particularly in dynamic industries. And so the likelihood, I mean, so many people have said, oh, he's just going to cite Philadelphia National Bank and call it quits. And I'm like, did you like, do you know anything about this guy? Like I think saying, you know,

he's a Reagan appointee and he's going to rubber stamp it. That's a complete failure to understand him, you know, but at least, you know, it's based on fact. I think saying he's going to, you know, cite Philadelphia National Bank called quits is both a failure to understand him and not based at any sort of fact. I mean, this is a guy who has a chance to set some seriously defining precedent and he's willing to do it. This is like he loves his job. That's what he wants to do. I'm going to give you a joke and then a serious thing. The joke is I was joking with someone earlier and he's eight, he's in his 80s, right? So I think he graduated law school in the late 60s, early 70s. I can't remember for sure. But, you know, when he graduated law school, Philadelphia had

just come out or was coming out. It was a precedent case that everyone would have been talking about. So one of the jokes we had was, look, maybe the government's hoping that, you know, he's just remembered his law school and they quote Philadelphia. He's like, oh, yeah, that's a seminal case. You've got to go with the Philadelphia. And he's ignoring all the precedent cases and all the cases for you that's happened after. He's like, that was at the end of the textbook. That's where antitrust law ends. That was the latest case. It never went further. I remember Professor Griffin teaching me that. You can't go wrong with the agreement from that was true. But, you know, I was.

Last thing, and then we'll go, I mean, with MDC, I've made this joke, and I told it to you before, I kind of want to file an amicus brief with the court and say, hey, if you rule for the government, you've just ruled that they can protect certain business models and certain, they can choose winners and certain, they can choose winners. And JetBlue actually makes that point in their brief. They say, A, the government is effectively arguing, if you give this, you've given them the, you've given them the right to choose business winners. And I think Jeff Blue makes that because, A, it's true. That's effectively what he's done. But B, they're also appealing to the judge's legacy. Hey, you have two choices here, right? You can make this ruling, and then it's going to be the next 20 years until it gets up to the Supreme Court,

and the Supreme Court overturns this because it has to be overturned. You can't give the government the right to choose business model, in my opinion, in my opinion. That's the route one. Or B, you can rule dynamic industries, all of these interesting things. And basically, ball, which gets cited a hundred times in this case, this case will be the new ball, right? Every time you've got a mobile industry, people are going to be citing this. And, you know, there's a Hawaiian, there's a Hawaiian Alaskan merger coming. when that gets tried, the post-closing trial findings of law, they're going to be citing this case, both sides, a thousand different times. So I do think they are appealing to his lexie.

And I mean, he can use kind of the agency's own words again. So like I don't know if we talked about like committed versus uncommitted markets. We may have that, you know, the FTC at least has published, say, you know, in committed markets, that's markets where it requires quite a bit of scale and effort to enter. Basically, you need to look at those more. critically when you're saying that, that, you know, replacement is coming online to, to, you know, to replace the lost business that, you know, of the, the acquiree. You know, I think he can say, look, we have an uncommitted business model. We have an uncommitted market where these planes are free to come in and out as they please, you know, so long as it's not maybe a couple markets that are constrained gatewise. But, you know, the FTC has basically said exactly that, that when you're have an uncommitted market, it's a less of a concern. And so I think he has the ability to craft

a very interesting decision that kind of does this jujitsu, like uses the weight of the FTC against them in certain places, even now, again, this is not FTC, but it still applies just, you know, from a mental framework standpoint. He has the ability to craft a very interesting decision, and I look forward to reading it. I don't think it will be as simple as, you know, PNB and we're up. My favorite jiu-jitsu in this case, though, and I just have to mention it because it actually made me laugh out when I read it. The government uses, They say, hey, there's this precedent case that says you can't buy mavericks in an industry, and you can consider a first maverick status when rejecting a merger.

And the precedent case they cite with the quotes is a case that said JetBlue itself is a maverick. It was the government arguing that JetBlue is a maverick that impacts industry pricing from the Northeastern Alliance case six months ago. And I just thought it was so funny that they would have the balls to argue, hey, Spirit's a Maverick. You can't buy Spirit because they're a Maverick. And the precedent case we're citing is that JetBlue, the buyer here, was ruled a Maverick, not more than six months ago. It cracked me all. Yeah, Mavericks stand by Mavericks. That's the rule of law. Lionel Hux, you and I, what, are we talking 10 hours a week, 12 hours a week these days, because we've got a lot going on. But I can't.

It could be more. Go ahead. It could be more. I can't encourage people to sign up to Valerum research enough. Obviously, we've done liquidity and spirit because those are two of the most interesting legal situation out there. But the good news is, Lina, I are always talking. There are several more. So, Lina, we're going to have me back on the podcast in the near future. But really appreciate you coming on and looking forward to the next one. Yeah, way to come back. A quick disclaimer.

Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.