Spirit terminates Frontier merger deal, paving way for possible JetBlue acquisition

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UPDATE (July 28, 2022): JetBlue to buy Spirit Airlines in a previously unlikely marriage (Original post below)

Spirit Airlines’ board is likely feeling blue this afternoon.

Spirit Airlines terminated its merger agreement with Frontier Airlines, marking the end of plans to form a supersized ultra-low-cost airline that would be the nation’s fifth-biggest carrier.

The nixed plan comes months after rival airline JetBlue made an unsolicited all-cash bid for Spirit, leading to an at-times contentious bidding war.

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Spirit, which urged shareholders to approve the Frontier plan, postponed a vote on the measure four times as it tried to rally support among shareholders, who appeared increasingly likely to reject the bid.

The final vote, which was supposed to take place on Wednesday, was canceled during voting in the afternoon as Spirit and Frontier announced the termination of the agreement.

“While we are disappointed that Spirit Airlines shareholders failed to recognize the value and consumer potential inherent in our proposed combination, the Frontier Board took a disciplined approach throughout the course of its negotiations with Spirit,” said Frontier board chairperson Bill Franke in a press release. “We were focused on offering the appropriate value for Spirit, while prioritizing consumers and the best interests of Frontier, our employees and shareholders.”

“As we enter our next chapter, Frontier remains well-positioned to deliver significant value to our shareholders as we serve the growing demand for affordable air travel,” CEO Barry Biffle added in the release.

During Frontier’s second-quarter earnings call, which began shortly after the termination was announced, Biffle offered more color.

“Our board took a disciplined approach throughout the course of our negotiations rather than overpay for Spirit,” Biffle said. “The board prioritized the interests of Frontier, our employees and our shareholders as a standalone entity, and potentially America’s ultra low-cost carrier.”

The termination of a deal that just months ago seemed likely to close could now pave the way for a JetBlue takeover bid that once seemed like a long shot.

“While we are disappointed that we had to terminate our proposed merger with Frontier, we are proud of the dedicated work of our team members on the transaction over the past many months,” said Spirit CEO Ted Christie said in a statement. “Moving forward, the Spirit board of directors will continue our ongoing discussions with JetBlue as we pursue the best path forward for Spirit and our stockholders.”

While the indication that shareholders were ready to reject the Frontier offer is not an explicit endorsement of JetBlue’s unsolicited takeover bid for Spirit, it’s an implicit signal that shareholders favor that deal. A spokesperson for Spirit said the airline was continuing talks with JetBlue.

The all-cash JetBlue deal, which includes a reverse breakup fee should the bid fail, values Spirit at $33.50 a share — or about $3.7 billion in total.

The rejection of the deal is a victory for persistent New York-based JetBlue and its CEO, Robin Hayes, who has raised the airline’s offer for Spirit five different times since March.

If it succeeds, JetBlue’s acquisition means it would acquire Spirit’s fleet of yellow Airbus A320-family aircraft — the aircraft that has formed the backbone of JetBlue’s fleet since the airline’s launch 22 years ago. Those aircraft would be painted and configured as JetBlue aircraft. Spirit’s staff members would become JetBlue employees, and the airline would eventually cease to exist.

Still, there are many unknowns about the next steps for JetBlue’s proposed transaction. It remains to be seen if Spirit’s board will fully cooperate with JetBlue now, or if the bid will remain hostile. Beyond that, the biggest question lies with regulatory approval.

More: Spirit is about to get bigger at Newark, wins flights vacated by Southwest

Should JetBlue ultimately succeed in convincing Spirit shareholders to agree to an acquisition, it faces what many analysts believe is an uphill antitrust review by the Department of Justice. JetBlue currently partners with American Airlines on the Northeast Alliance — a strategic partnership that involves reciprocal loyalty program benefits, codesharing and streamlined airport experiences. Many find it doubtful that the Northeast Alliance would be allowed to continue should JetBlue acquire Spirit. JetBlue has promised major divestitures if its deal goes through. These assets could include items of great value to the combined company such as gates and slots at congested Northeast airports.

Just this month, Spirit bested JetBlue and won 16 peak-hour runway timings at Newark Liberty International Airport (EWR). It now seems likely those timings might be part of the divesture.

Amid the uncertainty surrounding each airline’s eventual fate, unions representing the airline’s workers were quick to respond.

“Now that Spirit Airlines has terminated the Frontier merger agreement, we hope that Frontier management will put aside its merger distraction and invest the same amount of resources and focus to improving conditions at their own airline,” Capt. Alan Christie, chair of the Frontier Airlines Master Executive Council at the Air Line Pilots Association (ALPA) said.

“A standalone Frontier will not be competitive with a merged competitor until Frontier senior management makes a serious effort to improve relations with labor and understands the importance of a constructive and cooperative relationship with the pilot workforce,” Christie added.

“The shareholders have spoken. Our union remains focused on negotiating to improve the lives of flight attendants at Spirit and Frontier,” the Association of Flight Attendants-CWA added.

Featured photo by Zach Griff/The Points Guy.

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