JetBlue crashes Frontier-Spirit merger party with $3.6B cash offer

JetBlue (JBLU) has submitted a takeover bid for Spirit Airlines (S64) (SAVE), challenging an agreed deal for the ultra low-cost carrier from Frontier Airlines.  

JetBlue (JBLU) said by acquiring Spirit in its proposed $3.6 billion cash deal, the two would be able to better compete with the big four US carriers – American Airlines (A1G) (AAL), Delta Air Lines, Southwest and United. The four control 80% of the US domestic market.   

“The combination of the two airlines would position JetBlue (JBLU) as the most compelling national low-fare challenger to the four large dominant U.S. carriers,” JetBlue (JBLU) said in a statement on April 5, 2022. The airline claimed that its business model of being low-cost but not ultra low-cost like Spirit or Frontier generally results in the legacy carriers lowering prices more when it enters a new route or market than when an ULCC does.  

“Customers shouldn’t have to choose between a low fare and a great experience, and JetBlue (JBLU) has shown it’s possible to have both,” said Robin Hayes, JetBlue CEO. “When we grow and introduce our unique value proposition onto new routes, legacy carriers lower their fares and customers win with more choice.” 

How do the offers shape up? 

Frontier and Spirit announced merger plans on February 7, 2022, under which Spirit shareholders would receive 1.9126 Frontier shares plus $2.13 in cash, equivalent to valuing Spirit at $25.83 per share.  

JetBlue (JBLU) is offering an all-cash deal of $33 per Spirit share, which it says is a 37% premium to the value implied by the Frontier proposal.  

The Frontier proposal gives Spirit an equity value of $2.9 billion, and a transaction value of $6.6 billion when accounting for the assumption of net debt and operating lease liabilities. JetBlue (JBLU) says its proposal gives an equity value of $3.6 billion and an adjusted enterprise value of $7.3 billion for Spirit. 

 

How would a combined JetBlue and Spirit look? 

Hayes also said that if JetBlue (JBLU) won the bid for Spirit, then it would undertake a review of the airline’s model. 

“While JetBlue (JBLU) and Spirit are different in many ways, we also have much in common, including a focus on keeping our costs low so we can profitably expand and offer an attractive alternative to the dominant ‘Big Four’ airlines. We would conduct a full review of Spirit’s product offering, operational and customer technology, and talent pool to optimize the combined airline,” said Hayes. 

JetBlue (JBLU) said its offer provides job growth opportunities for crew members and allow it to extend its network across the U.S., Caribbean, and Latin America. In total, they would serve more than 77 million customers annually on more than 1,700 daily flights to over 130 destinations in 27.  

In addition, the two carriers have complementary Airbus fleets, which would provide benefits when it comes to training and maintenance, JetBlue (JBLU) said. Together, they would have a combined fleet of 455 aircraft with 312 aircraft on order.  

Spirit said it would review the offer and respond “in due course”. 

“The Spirit board of directors will work with its financial and legal advisors to evaluate JetBlue’s (JBLU) proposal and pursue the course of action it determines to be in the best interests of Spirit and its stockholders.”  

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