The fate of Spirit Airlines’ merger with fellow low-cost carrier Frontier Airlines is growing increasingly murky.
This week, Spirit postponed its shareholders’ meeting for the third time, opening the door to further talks from Frontier and rival suitor JetBlue Airways. The latest two delays each came just hours before Spirit shareholders were due to vote on the Frontier combination, a combination now worth $2.6 billion in cash and stock after Frontier recently sweetened the offer in the purpose of warding off the advances of JetBlue. JetBlue is offering about $3.7 billion in an all-cash takeover.
Ahead of the final scheduled vote, which was scheduled for Friday morning, it doesn’t appear Spirit has had enough votes to get the Frontier deal approved, according to people familiar with the matter.
Spirit would be required to pay Frontier a severance fee of more than $94 million if it deems JetBlue’s offer superior and abandons its original deal.
“We are working hard to complete this process while remaining focused on the well-being of our Spirit family,” Spirit CEO Ted Christie said in a memo to employees Thursday night after the vote was postponed. Spirit declined to comment further on Friday.
JetBlue, for its part, applauded the delay. CEO Robin Hayes said in a statement Thursday evening: “We are encouraged by our discussions with Spirit and hope they now recognize that Spirit shareholders have indicated their clear and overwhelming preference for an agreement with JetBlue.”
Neither JetBlue nor Frontier offered additional comment Friday.
At stake is a chance to become the country’s fifth-largest airline, behind American giants Delta, United and Southwest. A Spirit-Frontier merger could create a budget airline juggernaut, while JetBlue says its takeover bid would ‘boost’ growth at the airline, whose service includes more amenities and Mint business class on some planes.
“Spirit’s board is committed to reaching a deal with Frontier. They have never wavered,” said Brett Snyder, a former airline executive who now runs travel site Cranky Flier. “Their challenge is how do you get the votes? »
If the Frontier deal comes to a vote, Spirit shareholders will decide on a cash and stock transactions. The banking stock could mean a future benefit for shareholders if the rebound in travel drives the stock price higher. But they risk the opposite in the event of a recession or a slowdown in travel, although low-cost carriers such as Spirit and Frontier are less sensitive to the ups and downs of business travel than the major airlines.
JetBlue’s cash-in-hand offer avoids the gamble.
“With the Frontier deal, you trust what happens after the merger to make your money. With JetBlue, it’s: here’s the money, take the money, go,” Snyder said.
JetBlue has repeatedly sweetened its offer for Spirit, including raising reverse break fees if regulators block the deal. The airline’s persistence has put pressure on Frontier, which recently upped its own offer to match JetBlue’s reverse breakage fee.
Spirit’s board has rejected each of JetBlue’s proposals, arguing a takeover would not pass with the Justice Department, which is suing to block JetBlue’s own regional alliance with American Airlines in the northeast the United States.
The Biden administration’s Justice Department has pledged to take a hard line against deals that threaten competition, even assuming divestments. JetBlue, for example, promised to divest Spirit assets in the northeast to make its plan to buy Spirit more palatable.
But that’s only a concern if a Frontier deal is dead – and despite shareholder vote delays, that may not be the case, according to Bob Mann, aviation analyst and former airline executive. Aerial.
“I see this more as a case where Spirit is definitely paying attention to listening and reviewing [JetBlue’s offer] and they can ultimately conclude for themselves that it doesn’t make sense,” he said.
Should a deal with Frontier fail in the shareholder vote and pave the way for JetBlue, Frontier could still find itself in the lead: JetBlue’s plan is to convert Spirit’s compact, no-frills Airbus planes into its own planes, which include backrest screens, more legroom and free Wifi.
Everything JetBlue pays for Spirit “is a deposit,” Mann said. “The integration costs are going to be billions on top of that and take years.”
That would leave Frontier as the largest and most notable no-frills budget airline in the United States at a time when almost everything is getting more expensive.