What happened

Spirit Airlines (SAVE -3.22%) wasted little time in rebooking after cancelling its planned merger with Frontier Holdings Group. Less than 24 hours after Spirit terminated the Frontier deal, it has agreed to be acquired by JetBlue Airways (JBLU 5.63%), causing Spirit shares to jump 5% higher on Thursday.

So what

Spirit and Frontier first announced plans to merge back in February, but JetBlue set its sights on the airline soon after and launched a hostile offer to try to break up the Spirit/Frontier deal. On Wednesday, Spirit and Frontier terminated their agreement after failing to win Spirit shareholder support. On Thursday, JetBlue swept in.

JetBlue agreed to pay $33.50 per share for Spirit, valuing the airline at $7.6 billion including debt. The deal terms include a $2.50 per-share payment to Spirit holders as soon as shareholders sign off on the deal, and a monthly per-share payment starting in January if JetBlue is unable to quickly win regulatory approval.

The deal would create the nation's fifth largest airline with more than 1,700 daily flights to more than 125 destinations in 30 countries. JetBlue has also agreed to pay Spirit a $400 million breakup fee should the planned merger be rejected by antitrust regulators.

Now what

Spirit shares are up on Thursday, but they are still well below the $33.50 per share offer price. Although investors are excited about the premium JetBlue is offering, there are significant doubts about whether the deal will get done.

Airline investors have seen proposed deals fail before due to regulatory concerns. Soaring airfares are already a talking point this summer for lawmakers, and the idea of a deal that would further consolidate the industry and eliminate one of its low-fare competitors is unlikely to go over well. JetBlue in particular already has attracted regulatory ire for its complex web of alliances already in place and is sure to get added scrutiny from Washington.

Spirit shareholders today face a tough choice. Theoretically, if they hold on from here, they would receive a much higher payout if and when the deal gets done. But that deal is far from certain to get done, and Spirit management is likely to be distracted by the integration plans in the meantime. As a Spirit shareholder, I am tempted to cash in in the days to come and not wait around to see if Spirit gets acquired.

Until there is more clarity about the regulatory obstacles JetBlue faces, there is likely a ceiling on how high Spirit can fly.