Spirit Airlines’ planned merger with competing low-cost carrier Frontier Airlines is becoming less clear.
Spirit this week postponed its shareholder meeting for a third time, which allowed Frontier and competing suitor JetBlue Airways to hold additional discussions. The latter two delays each occurred just hours before Spirit shareholders were scheduled to vote on the Frontier tie-up, which is now valued at $2.6 billion in cash and stock after Frontier recently sweetened the offer to fend off JetBlue’s advances. An all-cash takeover bid of about $3.7 billion is being made by JetBlue.
According to those with knowledge of the situation, Spirit didn’t appear to have enough votes to pass the Frontier deal prior to the most recent scheduled vote, which was set for Friday morning.
If Spirit decides that JetBlue’s offer is better and terminates its original agreement, Spirit would be obligated to pay Frontier a break-up fee of more than $94 million.
Spirit CEO Ted Christie wrote in a note to staff late Thursday, following the vote’s yet another postponement, “We’re working hard to bring this process to a conclusion while remaining focused on the well-being of our Spirit Family.” On Friday, Spirit opted out of further comment.
For its part, JetBlue praised the delay. “We are encouraged by our discussions with Spirit,” said CEO Robin Hayes in a statement late on Thursday. “We are hopeful that they now recognize that Spirit shareholders have indicated their clear, overwhelming preference for an agreement with JetBlue.”
On Friday, neither JetBlue nor Frontier provided any additional commentary.
A chance to overtake industry goliaths American, Delta, United, and Southwest to take the fifth-largest airline ranking in the nation is at stake. While JetBlue claims its buyout offer would “turbocharge” growth at the airline, whose service includes more amenities and Mint business-class on some aircraft, a merger between Spirit and Frontier could create a budget airline behemoth.
“The board of Spirit is adamant about a deal with Frontier. They have never changed “said Brett Snyder, the owner of the travel website Cranky Flier and a former airline manager. “How do they get the votes is their challenge,”
Spirit shareholders will vote on a cash-and-stock deal if the Frontier deal is put to a vote. If the travel sector recovers, a future gain for shareholders in banking stocks may result. Budget airlines like Spirit and Frontier are less susceptible to the ups and downs of business travel than larger airlines, but they still run the risk of the opposite in the event of a recession or travel slowdown.
With its cash-in-hand offer, JetBlue avoids the risk.
“With the Frontier deal, your financial success depends on what transpires after the merger. It’s “Here’s the money, take the money, and go away” with JetBlue “said Snyder.
JetBlue has repeatedly improved its offer to Spirit, including raising the reverse break-up fee in the event that regulators decide to reject the transaction. Due to pressure from the airline, Frontier recently increased its own offer to match JetBlue’s reverse break-up fee.
Since the Justice Department is suing to stop JetBlue’s own regional alliance with American Airlines in the Northeast United States, the board of Spirit has rejected each of JetBlue’s acquisition proposals.
The Justice Department of the Biden administration has vowed to take a tough stance against deals that pose a threat to competition, even in the case of divestitures. For instance, JetBlue pledged to sell off Spirit’s Northeast-based assets in order to make its proposed takeover of Spirit more appealing.
However, that is only a concern if a Frontier deal is dead, which despite the delays in the shareholder vote, Bob Mann, an aviation analyst and former airline executive, believes may not be the case.
He said: “I see it more as a case of Spirit just being absolutely careful about listening and reviewing [JetBlue’s offer] and they may ultimately conclude on their own it doesn’t make sense.
Frontier may still come out ahead even if a proposed merger with JetBlue is defeated in a shareholder vote: The goal of JetBlue is to replace Spirit’s cramped, basic Airbus aircraft with ones that have seatback screens, more legroom, and free Wi-Fi.
Anything JetBlue spends on Spirit “is a down payment,” according to Mann. “On top of that, integration will cost billions and take years.”
In a time when nearly everything is getting more expensive, that would leave Frontier as the biggest and most notable no-frills budget airline in the United States.