What happened

The Department of Justice, as expected, has sued to try to block JetBlue Airways (JBLU -1.51%) from acquiring Spirit Airlines (SAVE -0.29%). But 24 hours after Spirit shares fell on the rumor, today, the stock is actually up more than 3% on the news. Although an outcome is far from certain, some investors seem to see room here for a compromise.

So what

Last summer, JetBlue outbid Frontier Holdings Group to acquire Spirit for $7.6 billion in cash, stock, and assumed debt. But investors knew from the start that a JetBlue/Spirit combination was likely to attract regulatory scrutiny, and on Tuesday, the DOJ followed through on that expectation.

The DOJ, along with the District of Columbia, Massachusetts, and New York, filed suit in a Massachusetts federal court to block a deal that Attorney General Merrick B. Garland said "would result in higher fares and fewer choices for tens of millions of travelers, with the greatest impact felt by those who rely on what are known as ultra-low-cost carriers in order to fly."

The government's action doesn't mean the deal is off, only that it is delayed while the two sides go to court to argue their cases. As Garland's statement notes, the DOJ's case is focused on the potential harm that would be done by eliminating Spirit, a so-called ultra-low-cost airline that tends to be the price setter, from the market.

JetBlue, however, is lining up allies. On Monday, Florida Attorney General Ashley Moody announced the airlines had agreed to increase seat capacity by at least 50% in both Fort Lauderdale and Orlando, boost service elsewhere in the state, and bring 1,000 new jobs to the state.

Now what

The airlines are willing to make some concessions to address the DOJ's concerns. JetBlue has offered to sell the entirety of Spirit's operations in Newark, N.J., New York LaGuardia, and Boston Logan International, as well as slots in Fort Lauderdale, to a competitor.

But the government's primary focus appears to be a separate alliance between JetBlue and American Airlines Group (AAL -0.88%) that allows those two airlines to coordinate schedules at certain Northeastern airports. The DOJ has filed a separate suit against that alliance.

JetBlue's options from here could boil down to (1) winning in court or (2) sacrificing its association with either Spirit or American to salvage the deal with the other. Spirit shareholders still have a chance of getting their payday, but they need to understand that a lot must go right for this deal to eventually close.