Spirit shareholders approve JetBlue deal in latest step of merger saga

Spirit Airlines shareholders approved the proposed merger with JetBlue on Wednesday, marking the next major phase of the saga over Spirit's future.

The vote came three months after shareholders effectively rejected a proposed merger with fellow ultra-low-cost carrier Frontier Airlines.

JetBlue first made an unsolicited offer for Spirit in April, setting off a protracted battle with Frontier as both airlines sought to acquire Spirit.

Spirit's board and executives urged shareholders to approve the stock-and-cash offer from Frontier, which despite being valued lower than JetBlue's offer, the board said was more likely to be approved by regulators. Spirit eventually pulled the shareholder vote, which appeared to be headed toward a rejection, before it could be completed. The board has since voted in favor of the JetBlue offer.

A combined Spirit-JetBlue would create America's fifth-largest airline, behind American, Delta, United and Southwest. JetBlue and Spirit are currently the sixth and seventh-largest, respectively.

JetBlue's current $3.8 billion offer would see the New York-based carrier purchase Spirit outright with cash. The airline has said that it plans to refurbish and rebrand Spirit's aircraft as its own, essentially doubling its size and doing away with the other low-fare, bare-bones brand.

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JetBlue has argued that its current growth opportunities are limited by new aircraft supply chains and the overall labor environment, which has seen high demand for pilots, flight attendants, aircraft maintenance technicians and others. By acquiring Spirit and absorbing it, JetBlue executives say, they can offer stronger competition against the so-called "big four" airlines.

The Biden Administration, however, has shown opposition to consolidation across various industries including airlines. JetBlue and the Department of Justice are currently litigating an antitrust case in U.S. District Court surrounding the airline's Northeast Alliance with American, which the DOJ has accused of being anti-competitive.

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Nevertheless, JetBlue executives have remained confident in their ability to get regulatory approval, even if they eventually have to argue their case in court.

"We're in the world where, if the DOJ looks at the landscape, they have to ask themselves, 'How did we get into a position where four airlines dominate 80% of the domestic seats?'" JetBlue president Joanna Geraghty asked during a remote interview with TPG in late July.

"The fundamental issue here at the DOJ level is fairness," she added. "We want to be able to compete on the same playing field that the DOJ created."

Read more: The battle for Spirit Airlines:

• Spirit terminates Frontier merger deal, paving way for possible JetBlue acquisition
• JetBlue vs. Frontier: Who will win the battle over Spirit and why does it matter?
• 3 reasons JetBlue's bid for Spirit could raise red flags for regulators
• JetBlue makes yet another offer for Spirit — but this time is different
• JetBlue is confident in Spirit deal despite regulatory hurdles, president says

Frontier CEO Barry Biffle, meanwhile, said that eliminating Spirit's brand would mean increased fares — and create opportunity for his airline.

"Consumers are going to want us because they're going to be paying more, so we'll grow as fast as we can to save them money," Biffle told TPG earlier this month.

JetBlue also faces a challenge in funding the acquisition.

On top of the $3.8 billion acquisition costs, JetBlue will face steep costs to retrofit Spirit's 180 aircraft, likely in the ballpark range of $3-$4 million per aircraft, or a total of around $540 million to $720 million, according to one estimate from an independent industry expert who asked not to be named.

JetBlue ended the second quarter of this year with just shy of $2.6 billion in cash, equivalents and investment securities, and $3.8 billion in debt (the airline valued its total assets, including aircraft, at $13.5 billion). Even if it depleted its entire cash and securities holdings, it would still be nearly $1 billion short for the acquisition.

Under the terms of its offer, JetBlue would also have to pay shareholders a reverse breakup fee worth about $470 million if the deal was rejected by the Department of Justice or otherwise falls through.

If approved by regulators, the deal could close as soon as early 2024.