The fate of Spirit Airlines’ merger with fellow low-cost airline Frontier Airlines grows increasingly murky.
Spirit this week postponed its shareholders’ meeting for the third time, opening the door for further talks from Frontier and rival bidder JetBlue Airways. The latter two delays each came just hours before Spirit shareholders were due to vote on a merger of Frontier, a cash-and-stock combination now worth $2.6 billion after Frontier recently sweetened the offer to fend off JetBlue’s advances. JetBlue is offering around $3.7 billion in a cash takeover.
Ahead of the last scheduled vote, scheduled for Friday morning, it appeared Spirit didn’t have enough votes to have the frontier deal approved, according to people familiar with the matter.
Spirit would be on the hook to pay Frontier a more than $94 million break-up fee if it decides JetBlue’s offer is superior and abandons its original deal.
“We are working hard to bring this process to completion while we remain focused on the well-being of our Spirit family,” Spirit CEO Ted Christie said in a note to employees late Thursday after the vote was again postponed had been. Spirit declined to comment further on Friday.
For its part, JetBlue applauded the delay. CEO Robin Hayes said in a statement late Thursday, “We are encouraged by our discussions with Spirit and hope they will now recognize that Spirit shareholders have expressed their clear, overwhelming preference for an arrangement with JetBlue.”
Neither JetBlue nor Frontier offered any further comment on Friday.
At stake is the chance to become the country’s fifth-largest airline behind giants American, Delta, United and Southwest. A merger of Spirit and Frontier could create a low-cost airline giant, while JetBlue says its takeover bid would “turbocharge” the airline’s growth, whose service includes more amenities and mint business class on some planes.
“Spirit’s board of directors is hellbent on a frontier deal. They’ve never wavered,” said Brett Snyder, a former airline executive who now runs the Cranky Flier travel site. “Your challenge is how do you get the votes?”
When the frontier deal comes to a vote, Spirit shareholders will decide on a Cash and stock deal. Bank stocks could represent a future benefit for shareholders if the travel recovery drives the share price higher. But they risk the opposite in the event of a recession or a slowdown in travel, although low-cost airlines like Spirit and Frontier are less sensitive to the ups and downs of business travel than larger carriers.
JetBlue’s cash-in-hand offering avoids gambling.
“With the frontier deal, you trust what will happen after the merger to make your money. At JetBlue, it’s like, here’s the money, take the money, go away,” Snyder said.
JetBlue has repeatedly sweetened its offer for Spirit, including increasing a reverse breakup fee should regulators block the deal. The airline’s persistence has put pressure on Frontier, which recently increased its own bid to match JetBlue’s reverse break-up fee.
Spirit’s board of directors has rejected each of JetBlue’s proposals, arguing that a takeover would not go through with the Justice Department, which is suing to block JetBlue’s own regional alliance with American Airlines in the US Northeast
The Biden administration’s Justice Department has vowed to take a hard line against deals that threaten competition, even assuming divestitures. JetBlue, for example, vowed to divest Spirit assets in the Northeast to make its proposed Spirit acquisition more palatable.
But that’s only an issue when a frontier deal is dead — and despite delays in shareholder voting, that may not be the case, according to Bob Mann, an aviation analyst and former airline chief executive.
“I see it more as a case where Spirit is just unquestioningly cautious about listening and judging [JetBlue’s offer] and they may ultimately decide for themselves that it doesn’t make sense,” he said.
Should a Frontier deal fail in a shareholder vote and pave the way for JetBlue, Frontier could still come out on top: JetBlue’s plan is to convert Spirit’s densely packed and no-frills Airbus planes into its own, the seatback umbrellas, more Legroom and more legroom include free wifi.
Whatever JetBlue pays for Spirit “is a down payment,” Mann said. “The integration costs will be billions and take years.”
This would make Frontier the largest and preeminent low-cost airline in the US at a time when almost everything is becoming more expensive.