JetBlue Airways has made an unsolicited cash offer for a proposed $3.6 billion deal to buy bargain airline Spirit Airlines, Spirit announced Tuesday.
JetBlue is looking to acquire Spirit’s common stock for $33 per share, Spirit said, adding that its board of directors will review the proposal and will pursue the “best interests of Spirit and its shareholders.”
The combination “would position JetBlue as the most compelling domestic low-fare challenger to the big four dominant US airlines by accelerating JetBlue’s growth,” JetBlue said in a statement, saying that it is Delta Air Lines, American Airlines, United Airlines and Southwest Airlines would cause fares to drop more than ultra-low-cost airlines entering new markets would.
The announcement comes at a time of change for the airline industry, with interest in travel plummeting at the start of the coronavirus pandemic. Air travel has since recovered almost to pre-pandemic levels, although several airlines have been caught off guard by the surge in demand in recent months.
Tuesday’s deal adds a significant factor to an ongoing merger effort between Spirit and low-cost carrier Frontier Airlines that would create the country’s fifth-largest airline.
JetBlue said the proposed deal is “superior” to Spirit’s existing agreement with Frontier and represents a 50 percent premium to Spirit’s recent closing price. Any deal would require federal regulators’ approval.
In a response to JetBlue’s offer, Frontier said the latest offering would “result in more expensive travel for consumers.” Frontier cited “significant East Coast overlap between JetBlue and Spirit” that would limit competition and consumer options.
Frontier and Spirit announce merger to create fifth-largest US airline
“It is surprising that JetBlue is contemplating such a merger at this time given the Justice Department’s current lawsuit to block its pending alliance with American Airlines,” Frontier said in a statement.
Last year, the Justice Department filed a lawsuit against an alliance between American and JetBlue Airways that allows airlines to sell each other seats on select flights in the Northeast.
Under the Spirit and Frontier agreement, Spirit shareholders would receive 1.9126 shares of Frontier plus $2.13 in cash for each existing share of Spirit they own, according to Spirit. Frontier said the agreement has “significant upside potential” for shareholders of both companies.
Spirit said it will respond to JetBlue “in due course.”
JetBlue said its offer would allow the airline to double its “long-standing commitment to Florida,” in addition to growth in Los Angeles, Las Vegas, Dallas, Houston, Chicago, Detroit, Atlanta and San Juan, Puerto Rico. The larger JetBlue would also serve St. Louis, Memphis, Louisville, Atlantic City and Myrtle Beach, SC for the first time, it said.
David Dague, an airline industry expert and head of management consultancy Arthur D. Little, said the size of the JetBlue-Spirit combination would dwarf that of the Frontier Spirit union. “The combination of the two is a much more competitive entity than the Big Four,” Dague said, adding that it would also allow JetBlue to offer more generous terms to Spirit shareholders.
JetBlue and Spirit would also become leading players in some of the strongest leisure markets, including travel to the Caribbean and Florida, which are lifting airlines out of the depths of the pandemic, Dague said. They would become the largest US airline to the Caribbean and the second largest in Florida, Dague said.
Buying Spirit would also bring JetBlue a new supply of pilots and address a nationwide shortage, Dague said. The merger “makes them competitive in this industry because trying to get enough pilots is going to be something that every airline in the US is going to deal with,” he said.
Any merger between the country’s airlines would be the first since Alaska Airlines announced it would acquire Virgin America in 2016. Before that, American Airlines and US Airways announced their intention to combine operations in 2013, creating the world’s largest airline.