Frontier Loses Its Bid To Acquire Spirit, Looks Like Spirit-JetBlue Is Next

Spirit Airlines shareholders rejected selling the airline to Frontier. The offer was too low, made abundantly clear by JetBlue offering 40% more – whether a Spirit-JetBlue deal could be consummated in the face of likely government anti-trust opposition or not.

It was clearly a no-brainer for Spirit shareholders to reject the Frontier deal and sell to JetBlue.

  • JetBlue is offering 40% more forSpirit
  • If the JetBlue deal doesn’t close for anti-trust reasons they get $400 million and still own their shares (and can still sell the company)

Spirit’s argument has been (1) that the deal won’t close for anti-trust reasons, but JetBlue’s breakup fee makes it worth the hassle and risk, and (2) that the combined Frontier-Spirit would make Spirit’s shares worth $50 (versus the roughly $24 price Frontier offered, and $34 JetBlue would pay).

The notion of Frontier adding so much value to Spirit shareholders is only possible through inflation. But if the claim were true then Spirit’s board should have been demanding more than $25 per share to sell in the first place.

Spirit delayed and delayed the vote because it lacked shareholder support. Now shareholders have declined to sell and that merger deal has been terminated.

That leaves the JetBlue deal on the table. Spirit says they will pursue those discussions. Ironically Soirit is worth less to JetBlue than it is to Frontier

  • It moves Spirit’s resources from a higher margin low cost carrier model to business model that’s proven lower margin

  • And it does this while raising costs – giving many Spirit employees raises to match salaries of new peers, and retrofitting all of Spirit’s planes to a JetBlue standard as the carrier has said they would do.

JetBlue wants to buy Spirit for parts – gates, slots (though they’d divest many of those), pilots and planes. And they’re willing to pay $400 million for the chance to get the deal to close in the face of government opposition.

Meanwhile the most likely way to get regulatory approval is to trade the American Airlines joint venture, which the federal government is also opposing. If they can make that deal quickly, they can presumably have Spirit.

But that hurts consumers.

  1. JetBlue is taking Spirit’s planes out of ultra low cost carrier flying, which is bad for fares
  2. And the loss of the American-JetBlue alliance takes out a viable competitor in New York, effectively ceding the market to United and Delta

    Of course late night comedians may miss the Spirit brand most.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Gary, I’ve asked this before and am genuinely curious.

    Why do you insist on calling the AA-B6 relationship a joint venture, when it is, legally and structurally, not a joint venture or joint business?

    There is feed, scheduling, and code sharing, but no shared revenue and costs on routes, no price coordination, etc.

    Am actually curious.

  2. Neither merger sounded like a clear win for consumers

    Maybe DOJ will block and all 3 will remain viable concerns

  3. I don’t understand Gary’s analysis of the proposed deal with AMR. If American is attempting to buy Spirit for its “parts”; isn’t it necessary to estimate the value of the parts (planes, gates, pilots, slots etc.) to properly say whether they’re overpaying or not? Just an example, we keep being told how government restrictions have contributed to a pilot shortage. What’s the value in acquiring a bunch of trained pilots. AMR may be overpaying but I haven’t seen a rigorous analysis here.

  4. I disagree that Jetblue is buying Spirit for spare parts. Spirit has a lot of new planes and pilots. Pilots are a really valuable asset these days.

  5. If the price JBLU has to pay is ditching the NEA with AAL then it will be well worth it.

  6. It doesn’t matter how this plays out. The flying public will be loser. We’ll all get burned by the new Jet Blue Dumpster Fire.

  7. a JBLU acquisition of SAVE will be the most costly acquisition in the history of the US airline industry based on the percent of revenue of the acquired company.
    JBLU will be mired for years in costs to integrate SAVE.
    And the Northeast Alliance will be thrown overboard which will hurt American which has restructured its network around the NEA and away from traditional AA hubs.
    The biggest winner of JBLU-SAVE will be Delta.

  8. If spirit pursues jetblue, it means lengthy regulatory uncertainty, and probably litigation. During this time, spirit can’t buy planes or make big acquisitions, because they don’t know who will own them in 12 months. I believe this hurts them.

  9. I hope that the Executive Branch stops this airline combination and that this Supreme Court doesn’t get in the way of the government taking action to prevent further industry concentration at the expense of consumers. Unfortunately, the judiciary is stacked to be in favor of companies.

  10. What is the DOJ going to argue? “Oh we let these other 4 airlines become 80% of the market. But JetBlue, nah.” It’s the airline version of “pay no attention to the man behind the curtain”.

  11. @john – the fact that previous mergers went through makes the market more concentrated and future mergers less likely, it’s not a precedent for future mergers. Indeed, DOJ opposed American-US Airways but settled for a pittance, they didn’t exactly “let” the merger happen [only adjudication by a court could lead to that outcome but we didn’t get final litigation outcomes in any of those mergers]

  12. I hear many opine on the reason that this such a bad deal for JBLU, but has anyone asked themselves what position JBLU would be in should they have stayed on the sidelines. They would have (IMHO) been even more marginalized being even smaller than the comb of Frontier and Spirit. If growing organically is not feasible then growing via acquisition makes sense. There really is no hope that JBLU could be acquired by another larger carrier so right now their best option is to be the acquirer. I’m guessing had Frontier not made a move for Spirit that JBLU would have not acted. That not being the case they needed to make a move.
    Now, did JBLU overpay for Spirit?…probably. But I’m guessing the bean counters and the BOD at JBLU have crunched the numbers to see that ultimately it will pay off. I’m guessing they have a keener insight to all this than any of us. There was an opportunity cost to doing nothing.
    Also, should JBLU investors (institutional and retail) think this is really a boneheaded move they always have of option of voting in a new BOD.
    And finally, yes the DOJ is the unknown entity in this whole matter but perhaps if JBLU divests itself of enough assets as well as dumping the NEA with AAL that will be enough to get their blessing.
    Mind you, this is just my 2cents worth (that in adjusted inflation terms) is really only worth maybe a penny at most.

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